Reference no: EM132531126

Suppose that the Treasury bill rate is 5% rather than 2%, as we assumed in Table 12.1, and the expected return on the market is 10%. Use the betas in that table to answer the following questions.

Question a. When you assume this higher risk-free interest rate, what makes sense for how you should modify your assumption about the rate of return on the market portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Question b. Recalculate the expected return on the stocks. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Question c. Suppose now that you continued to assume that the expected return on the market remained at 10%. Now what would be the expected returns on each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

Question d. Ford offer a higher or lower expected return if the interest rate is 5% rather than 2%?

Question e. Walmart offer a higher or lower expected return if the interest rate is 5% rather than 2%?