Chapter 5

c. kN = Required rate of return on new stock = 6% + (5%)2.0 = 16%. An expected return of 15 percent on the new stock is below the 16 percent required rate of return on an investment with a risk of b = 2.0. Since kN = 16% > N = 15%, the new stock should not be purchased. The expected rate of return that would make the fund indifferent to ... ................
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