## Answered: - Assume that the risk-free rate is 4% and the market risk premium

Assume that the risk-free rate is 4% and the market risk premium is 5%. Given this information, which of the following statements is CORRECT?

 a. If a stock has a negative beta, its required return must also be negative. b. An index fund with beta = 1.0 should have a required return less than 9%. c. If a stock's beta doubles, its required return must also double. d. An index fund with beta = 1.0 should have a required return greater than 9%. e. An index fund with beta = 1.0 should have a required return of 9%.

2.Brodkey Shoes has a beta of 1.10, the ?T-bond rate is 5.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 14.00%. Based on the SML, what is the firm's required return?

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This question was answered on: Oct 07, 2020

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