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solution

A few years ago, the Value Line Investment Survey reported the following market betas for the stocks of selected healthcare providers:

At the time these betas were developed, reasonable estimates for the risk-free rate, RF, and required rate of return on the market, R(RM), were 6.5 percent and 13.5 percent, respectively.

a. What are the required rates of return on the four stocks?

b. Why do their required rates of return differ?

c. Suppose that a person is planning to invest in only one stock rather than hold a well-diversified stock portfolio. Are the required rates of return calculated above applicable to the investment? Explain your answer.

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