Assume That a Security Is Fairly Priced and Has an Expected

question 12

Multiple Choice

Assume that a security is fairly priced and has an expected rate of return of 0.17. The market expected rate of return is 0.11, and the risk-free rate is 0.04. The beta of the stock is

• A) 1.25.
• B) 1.86.
• C) 1.
• D) 0.95.

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Definitions:

Long-term Notes Receivable

Loans or credit extended to others that are not expected to be repaid within the next twelve months, reported as long-term assets on the balance sheet.

Fair Value

The price that would be received for selling an asset or paid for transferring a liability in an orderly transaction between market participants at the measurement date.

Non-interest Bearing Notes

A type of debt instrument that does not accrue interest over time, requiring the borrower to repay only the principal amount.

Historical Cost

The original monetary value of an asset or investment, not adjusted for inflation or changes in market value.