Consider the Information Below for Postman Builders Inc $\quad$

question 20

Multiple Choice

Consider the information below for Postman Builders Inc.Suppose that the expected inflation rate and thus the inflation premium increase by 2.0 percentage points,and Postman acquires risky assets that increase its beta by the indicated percentage.What is the firm's new required rate of return? Beta: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$1.50$
Reqquired return $\left( r _ { s } \right)$ $\quad$$\quad$$\quad$$\quad$ $10.20 \%$
$R \mathrm { R } _ { \mathrm { M } }$ $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $6.00\%$
percentage increase in beta: $\quad$$\quad$$\quad$ $20 \%$

• A) 14.00%
• B) 14.70%
• C) 15.44%
• D) 16.21%
• E) 17.02%

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Definitions:

Psychoanalytic

A theory of personality and therapeutic method that attributes thoughts and actions to unconscious motives and conflicts, developed by Sigmund Freud.

Humanistic Brands

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Self-Fulfilling Prophecy

A belief or expectation that an individual holds about a future event that manifests because the individual holds it.

Regression Toward the Mean

The statistical phenomenon that if a variable is extreme on its first measurement, it will tend to be closer to the average on its second measurement, and vice versa.