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Porter Plumbing's stock had a required return of 11.00% last year, when the risk-free rate was...

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Finance

Porter Plumbing's stock had a required return of 11.00% lastyear, when the risk-free rate was 5.50% and the market risk premiumwas 4.75%. Then an increase in investor risk aversion caused themarket risk premium to rise by 2%. The risk-free rate and thefirm's beta remain unchanged. What is the company's new requiredrate of return? (Hint: First calculate the beta, then find therequired return.)

Answer & Explanation Solved by verified expert
3.8 Ratings (558 Votes)
The expected return is calculated using the Capital AssetPricing Model CAPM which is calculated    See Answer
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Transcribed Image Text

Porter Plumbing's stock had a required return of 11.00% lastyear, when the risk-free rate was 5.50% and the market risk premiumwas 4.75%. Then an increase in investor risk aversion caused themarket risk premium to rise by 2%. The risk-free rate and thefirm's beta remain unchanged. What is the company's new requiredrate of return? (Hint: First calculate the beta, then find therequired return.)

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