Data for Atwill Corporation is shown below. Now Atwill acquires some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return?
$$\begin{array} { l r }
\text { Inttal beta } & 10.00 \% \
\text { Initial required return ( } \mathrm { s } . & 6.00 \% \
\text { Market risk premrium RP } & 30.00 \% \
\text { Percentage increase in beta } & 2.00 \%
\end{array}$$
A) 14.00%
B) 14.70%
C) 15.44%
D) 16.21%
E) 17.02%

Question

Data for Atwill Corporation is shown below. Now Atwill acquires some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return?
 $$\begin{array} { l r } 
\text { Inttal beta } & 10.00 \% \
\text { Initial required return ( } \mathrm { s } . & 6.00 \% \
\text { Market risk premrium RP } & 30.00 \% \
\text { Percentage increase in beta } & 2.00 \%
\end{array}$$
A) 14.00%
B) 14.70%
C) 15.44%
D) 16.21%
E) 17.02%

Quizplus · Accepted Answer

$\begin{array}{lr}
\text { Old beta } & 10.00 \
\text { Old } r_{\mathrm{S}}=1 \mathrm{RF}+\mathrm{b}\left(\mathrm{RP} P_{\mathrm{M}}\right) & 6.00 \% \
\mathrm{RP} P_{\mathrm{M}} & 30.00 \% \
\text { Percentage increase in beta } & 2.00 \% \
\text { Increase in } \mathbb{P} & 1.30 \
\text { Find new beta after increase }= & 4.20 \% \
\text { Find old } r_{\mathrm{RF}}: \text { Old } \mathrm{r}_{\mathrm{S}}=1_{\mathrm{RF}}+\mathrm{b}\left(\mathrm{RP}_{\mathrm{M}}\right): 10.2 \%=\mathrm{r}_{\mathrm{RF}}+1.0(6.0 \%): \mathrm{r}_{\mathrm{RF}}= & 4.20 \% \
10.2 \%-6.0 \%= & 6.20 \% \
\text { Find new } 1 \mathrm{RF}: \text { Old } r_{\mathrm{RF}}+\text { increase in } \mathbb{P}= & 14.00 \%
\end{array}$

Data for Atwill Corporation Is Shown Below A) 1400% B) 14

Data for Atwill Corporation Is Shown Below A) 1400%
B) 14