Porter Plumbing's Stock Had a Required Return of 11

question 99

Multiple Choice

Porter Plumbing's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%.Then an increase in investor risk aversion caused the market risk premium to rise by 2%.The risk-free rate and the firm's beta remain unchanged.What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)

• A) 14.38%
• B) 14.74%
• C) 15.11%
• D) 15.49%
• E) 15.87%

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Definitions:

Currency Devaluation

A deliberate downward adjustment of a country's currency value relative to another currency, group of currencies, or standard.

Export Producers

businesses or individuals that produce goods or services for sale in foreign markets outside their own country.

Exports

Goods or services sent from one country to another for the purpose of trade.

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, suggesting that exchange rates should adjust to equalize the price of identical goods in different countries.