Several years ago, the Value Line Investment Survey reported the following market betas for the stocks of selected healthcare providers:
Company Beta
Quorum Health Group 0.90
Beverly Enterprises 1.20
HEALTHSOUTH Corporation 1.45
United Healthcare 1.70
At the time these betas were developed, reasonable estimates for the risk-free rate, RF, and required rate of return on the market (R(RM), were 6.5% and 13.5%, respectively.
a) What are the required rates of return on the 4 stocks?
b) Why do their required rates of return differ?
c) Suppose that a person is planning to invest in only one stock rather than a well-diversified stock portfolio. Are the required rates of return calculated above applicable to the investment? Explain your answer