Consider the information below for Postman Builders Inc.Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points,and Postman acquires risky assets that increase its beta by the indicated percentage.What is the firm's new required rate of return? Beta: $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$1.50$
Reqquired return $\left( r _ { s } \right)$ $ \quad $$ \quad $$ \quad $$ \quad $ $10.20 \%$
$R \mathrm { R } _ { \mathrm { M } }$ $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $ $6.00\%$
percentage increase in beta: $ \quad $$ \quad $$ \quad $ $20 \%$
A) 14.00%
B) 14.70%
C) 15.44%
D) 16.21%
E) 17.02%

Question

Consider the information below for Postman Builders Inc.Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points,and Postman acquires risky assets that increase its beta by the indicated percentage.What is the firm's new required rate of return? Beta:  $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$1.50$
Reqquired return $\left( r _ { s } \right)$  $ \quad $$ \quad $$ \quad $$ \quad $ $10.20 \%$
$R \mathrm { R } _ { \mathrm { M } }$ $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $ $6.00\%$
percentage increase in beta: $ \quad $$ \quad $$ \quad $ $20 \%$
A) 14.00%
B) 14.70%
C) 15.44%
D) 16.21%
E) 17.02%

Quizplus · Accepted Answer

Olt beta: $ \quad $$ \quad $$ \quad $$ \quad $ $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$1.50$ Old $r _ { 5 } = r _ { R F } + b \left( R P _ { M } \right)$ $ \quad $$ \quad $$ \quad $$ \quad $ $10.20 \%$ $R P_{M} $ $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$6.00 \%$ percentage increase in beta: $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $ $20 \%$ Find new beta after increase = 1.80 Find dld $r _ { \mathrm { RF } } : \quad$ Old $r _ { 5 } = r _ { \mathrm { RF } } + \mathrm { b } \left( \mathrm { RP } _ { \mathrm { M } } \right) : 10.2 \% = r _ { \mathrm { RF } } + 1.5 ( 6.0 \% ) : r _ { \mathrm { RF } } = 10.2 \% - 9.0 \% = 1.20 \%$ Find new $T _ { R F }$ : Old $r _ { R F } + 2.0 \%$ increase in infletion $= 3.20 \%$ Find new r_s = new r_RF + new beta(RP_M)= 14.00%

Consider the Information Below for Postman Builders Inc \quad

Consider the Information Below for Postman Builders Inc $\quad$