Use the Information for the Question(s)below

question 27

Multiple Choice

Use the information for the question(s) below.
Suppose that in the coming year,you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9,and Merck's stock to have a volatility of 24% and a beta of 1.1.The risk-free interest rate is 4% and the market's expected return is 12%.
-The cost of capital for a project with the same beta as Merck's stock is closest to:

• A)11.2%.
• B)12.8%.
• C)12.4%.
• D)11.6%.

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Definitions:

Cognitive Bias

A systematic pattern of deviation from norm or rationality in judgment, where individuals create their own "subjective reality" from their perception.

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

Satisficing

A decision-making strategy that entails searching through the available alternatives until an acceptability threshold is met, rather than seeking the optimal solution.

Problem Frame

A perspective or way of viewing and understanding a problem within a specific context, guiding problem-solving efforts.