As a corporate manager you are concerned with what will happ…
As a corporate manager you are concerned with what will happen to the required return to Doughboy Doughnuts equity as market conditions change. Suppose that the R(rf) =4%, the R(m) is 12%, and B(DD) is 1.5. A. Under current conditions what is the required rate of return for your stock? B. Suppose (only that ) the slope of the SML remains constant, but the risk free rate decreases to 4% (holding the Market Risk Premium constant) What will happen to the required return? C. Suppose (Only) that the Slope of the SML increases so that the Return on the Market is now 15%, but the risk free rate remains at 4% {the MRP is now 11}. what effect would this have on the stock’s return?