Use the Following Information to Answer the Question(s)below

question 45

Multiple Choice

Use the following information to answer the question(s) below.
Assume that the economy has three types of people.20% are fad followers,75% are passive investors,and 5% are informed traders.The portfolio consisting of all informed traders has a beta of 1.4 and an expected return of 16%.The market has an expected return of 10% and the risk-free rate is 4%.
-The expected return for the fad follower's portfolio is closest to:

• A)11.5%.
• B)12.4%.
• C)13.6%.
• D)16.0%.

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Definitions:

Operating Income

A measure of a company's profit excluding one-off items and costs not directly related to its core operations, such as interest and taxes.

Net Cash Inflows

The total amount of cash received minus cash outflows over a specific period, indicative of financial health.

Salvage Value

The estimated resale value of an asset at the end of its useful life.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period, used in capital budgeting to assess the profitability of an investment.