Company X has beta = 1.6, while Company Y's beta = 0.7. The risk-free rate is 7%, and the required rate of return on an average stock is 12%. Now the expected rate of inflation built into rRF rises by 1 percentage point, the real risk-free rate remains constant, the required return on the market rises to 14%, and betas remain constant. After all of these changes have been reflected in the data, by how much will the required return on Stock X exceed that on Stock Y?
a. 5.40%
b. 5.75%
c. 3.75%
d. 4.82%
e. 4.20%
Answers: 2
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Company X has beta = 1.6, while Company Y's beta = 0.7. The risk-free rate is 7%, and the required r...
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