Consider the Single-Factor APT

question 72

Multiple Choice

Consider the single-factor APT. Stocks A and B have expected returns of 12% and 19%, respectively. The risk-free rate of return is 3%. Stock B has a beta of 1.2. If arbitrage opportunities are ruled out, stock A has a beta of

• A) 0.47.
• B) 1.00.
• C) 1.30.
• D) 1.69.
• E) 0.75.

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Definitions:

Machine Hours

A measure of the amount of time a machine is utilized during the production of goods, often used to allocate manufacturing overhead.

Productive Capacity

The maximum output a system can produce over a given period under normal conditions, reflecting its efficiency and effectiveness.

Variable Costs

Costs that change in proportion to the level of activity or volume of production within a business.

Additional Processing Costs

Costs incurred when further processing is done on a product after an initial manufacturing phase, often enhancing its value.