Question

As an equity analyst you are concerned with what will happen to the required return to Universal Toddler' stock as market conditions change. Suppose rRF = 6%, rM = 10%, and bUT = 1.5.

1. What is rUTI, the required rate of return on UTI Stock? Round your answer to two decimal places.

Answer 1

The required rate of return on UT stock is 12%

Step-by-step explanation

`r_(f)` = Risk-free rate = 6%

`r_(m)` = Market return = 10%

β
`_(ut)` = 1.5

`r_(ut)` = ??

`r_(ut)` =
`r_(f)` + β
`_(ut)` (
`r_(m)` -
`r_(f)` )

`r_(ut)` = 6 + 1.5 ( 10 - 6)

`r_(ut)` = 12%

The required rate of return on UT stock is 12%