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28 April, 01:35

Niendorf Corporation's stock has a required return of 13.00%, the risk-free rate is 7.00%, and the market risk premium is 4.00%.

Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2.00%.

What is Niendorf's new required return?

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  1. 28 April, 01:53
    0
    beta = 1.5

    new required return is 16%

    Explanation:

    given data

    required return = 13.00%

    risk-free rate = 7.00%

    market risk premium = 4.00%

    market risk premium increases = 2.00%

    solution

    we know that market interest rate that is express as

    market interest rate = risk free interest + beta * risk premium ... 1

    put here value and we get beta

    13 = 7 + beat * 4

    beta = 1.5

    and

    now when risk premium increase by 2% i. e now 6%

    so put here value in equation 1

    market interest rate = 7 + 1.5 * 6

    market interest rate = 16%

    so new required return is 16%
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