Risk and return involves calculation of stock's beta and expected return.

Beta and required rate of return A stock has a required return of 11 percent; the risk free rate is 7 percent; and the market risk premium is 4 percent.

a. What is the stock's beta?

b. If the market risk premium increased to 6 percent, what would happen to the stock markets rate of return?

Assume the risk-free rate and the beta remain unchanged.

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