Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expected return on

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Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expected return on the market stays at 9%. Use the betas in Table 8.2.

a. Calculate the expected return from Johnson & Johnson.

b. Find the highest expected return that is offered by one of these stocks.

c. Find the lowest expected return that is offered by one of these stocks.

d. Would Ford offer a higher or lower expected return if the interest rate were 2% rather than 6%? Assume that the expected market return stays at 9%.

e. Would Walmart offer a higher or lower expected return if the interest rate were 8%?

Table 8.2

Suppose that the Treasury bill rate is 6% rather than


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Principles of Corporate Finance

ISBN: 978-1259144387

12th edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen

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