Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE):

r_RF = 2%; r_M = 10%; RP_M = 8%, and beta = 1

What is WCE's required rate of return? Round your answer to 2 decimal places. Do not round intermediate calculations. %

If inflation increases by 3% but there is no change in investors' risk aversion, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

Assume now that there is no change in inflation, but risk aversion increases by 1%. What is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

If inflation increases by 3% and risk aversion increases by 1%, what is WCE's required rate of return now? Round your answer to two decimal places. Do not round intermediate calculations. %

EXPECTED AND REQUIRED RATES OF RETURN

Assume that the risk-free rate is 4.5% and the market risk premium is 4%.

1. What is the required return for the overall stock market? Round your answer to two decimal places. %

2. What is the required rate of return on a stock with a beta of 0.6? Round your answer to two decimal places. %