Suppose You Forecast That the Market Index Will Earn a Return

question 43

Multiple Choice

Suppose you forecast that the market index will earn a return of 12% in the coming year. Treasury bills are yielding 4%. The unadjusted β of Mobil stock is 1.50. A reasonable forecast of the return on Mobil stock for the coming year is _________ if you use a common method to derive adjusted betas.

• A) 15.0%
• B) 15.5%
• C) 16.0%
• D) 14.7%

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Definitions:

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and regulators.

Accounting Information

The data related to the financial transactions and status of a business that is used for reporting purposes.

Faithful Representation

A qualitative characteristic of financial information that ensures the information depicts the economic phenomenon it intends to represent, without error or bias.

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.