Answer:
2.7%
Explanation:
Calculation for the amount of the change in the expected rate of return for Delta Company based on this revision to beta
First step is to calculate the Expected rate of return for Delta Company stock before adjustment
Expected rate of return for Delta Company stock before adjustment =3+.85(12-3)
Expected rate of return for Delta Company stock before adjustment =3+.85(9)
Expected rate of return for Delta Company stock before adjustment =3+7.65
Expected rate of return for Delta Company stock before adjustment=10.65%
Second step is to calculate the Revised expected return with new beta
Revised expected return with new beta = 3 + 1.15( 12 - 3)
Revised expected return with new beta=3+1.15(9)
Revised expected return with new beta=3+10.35
Revised expected return with new beta=13.35%
Last step is to calculate the Amount of change in the expected rate of return
Using this formula
Amount of change in the expected rate of return=Revised expected return with new beta-Expected rate of return for Delta Company stock before adjustment
Let plug in the formula
Amount of change in the expected rate of return = 13.35% - 10.65%
Amount of change in the expected rate of return=2.7%
Therefore the amount of the change in the expected rate of return for Delta Company based on this revision to beta will be 2.7%
