A stock has a required return of 15%, the risk-free rate is 2.5%, and the market risk premium is 5%.
a: What is the stock's beta? Round your answer to two decimal places.
b: If the market risk premium increased to 9%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places.
I: If the stock's beta is equal to 1.0, then the change in required rate of return will be less than the change in the market risk premium.
II: If the stock's beta is greater than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
III: If the stock's beta is less than 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
IV: If the stock's beta is greater than 1.0, then the change in required rate of return will be less than the change in the market risk premium.
V: If the stock's beta is equal to 1.0, then the change in required rate of return will be greater than the change in the market risk premium.
