If a Firm Has a Market Beta of 0

question 38

Multiple Choice

If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?

• A) 6%
• B) 7%
• C) 12.3%
• D) 13%

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Definitions:

Democracy

In a democracy, citizens exercise a high degree of control over the state. They do this mainly by choosing representatives in regular, competitive elections.

Inequality

The unequal distribution of wealth, opportunities, and privileges within a society.

Economic Growth

An increase in the amount of goods and services produced per head of the population over a period of time.

Modernization Theory

A theory that posits that societies progress through stages of economic development, from traditional to modern industrial economies, with corresponding social and cultural changes.