Suppose the Beta of Amazon Is 2

question 13

Multiple Choice

Suppose the beta of Amazon is 2.2, the risk-free rate is 5.5 percent, and the market risk premium is 8 percent. Calculate the expected rate of return for Amazon.

• A)15.8 percent
• B)14.3 percent
• C)35.2 percent
• D)23.1 percent

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Definitions:

Market

Any structure that allows buyers and sellers to exchange any type of goods, services, and information.

Perfectly Inelastic

A situation in demand where the quantity demanded does not change regardless of changes in price.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.

Binding Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service, which is set below the market equilibrium price, leading to shortages.