The risk-free rate of return is 6 percent, based on an expected inflation premium of 3 percent. The expected rate of return on the market portfolio is 15 percent.
a. Determine the required rate of return on Wisconsin Public Service (WPS) common stock whose beta is 0.60.
b. Assume that the expected rate of return on the market portfolio remains constant but that the expected inflation premium increases from a current level of 3 percent to 4 percent. Determine the required rate of return on WPS common stock.
c. Assume that the expected inflation premium remains at 3 percent but that the expected return on the market portfolio increases to 16 percent. Determine the required rate of return on WPS common stock.