Question: Yesterday Susan determined that the risk free rate of return rRF
Yesterday, Susan determined that the risk-free rate of return, rRF, is 3 percent, the required return on the market portfolio, rM, is 10 percent, and the required rate of return on Stock K, rK, is 17 percent. Today, Susan received new information that indicates investors are more risk averse than she thought, such that the market risk premium, RPM, actually is 1 percent higher than she estimated yesterday. When Susan considers the effect of this change in risk premium, what will she determine the new rK to be?
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