What is the required rate of return on stock y

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Question - Assume that the following returns were earned on Stock Y and the market during the last eight years.

a. What is Stock Y's beta coefficient?

b. If the expected value of rM is 9 percent and rRF is 6 percent, what is the required rate of return on Stock Y?

c. Suppose that in January, 2021, investors learn that Firm Y will, in the future, face much greater competition, and investors conclude that Stock Y will, in the future, be exposed to much higher nondiversifiable risk. Expected future profits and dividends, however, are unchanged (although the uncertainty about profits and dividends does increase). What effect is this knowledge likely to have on Stock Y's market price, on the realized rate of return on Stock Y during 2020, on the required rate of return on the stock, and on the expected rate of return on the stock in the future?

Reference no: EM133044307

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