Final answer:
The required return for the overall stock market is 10.5% and the required rate of return on a stock with a beta of 1.5 is 14%.
Step-by-step explanation:
The required return for the overall stock market can be calculated by adding the risk-free rate to the market risk premium. In this case, the risk-free rate is 3.5% and the market risk premium is 7%. Therefore, the required return for the overall stock market is 3.5% + 7% = 10.5%.
The required rate of return on a stock with a beta of 1.5 can be calculated by multiplying the beta by the market risk premium and then adding the risk-free rate. In this case, the beta is 1.5, the market risk premium is 7%, and the risk-free rate is 3.5%. Therefore, the required rate of return on the stock is 1.5 × 7% + 3.5% = 14%.