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# (P8-1) Expected return A stock's returns have the following distribution: Demand for the Company's Products Weak Below average Average Above Average...

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1. (P8-1) Expected return A stock's returns have the following distribution: Demand for the Probability of This Rate of Return If This Company’s Products Demand Occurring Demand Occurs Weak 0.1 (50 %) Below average 0.2 (5) Average 0.4 16 Above Average 0.2 25 Strong 0.1 60 1.0 Calculate the stock's expected return, standard deviation, and coefficient of variation. 2. (P8-3) Required rate of return Assume that the risk-free rate is 6 percent and the expected return on the market is 13 percent. What is the required rate of return on a stock with a beta of 0.7? 3. (P8-5) Beta and required rate of return A stock has a required return of 11 percent; the risk-free rate is 7 percent; and the market risk premium is 4 percent. a. What is the stock's beta? b. Is the market risk premium increased to 6 percent, what would happen to the stock's required rate of return? Assume the risk-free rate and the beta remain unchanged.

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