A Company Has a Beta of 3

question 18

Multiple Choice

A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?

• A) 22.750 percent
• B) 33.125 percent
• C) 45.500 percent
• D) 51.000 percent

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Definitions:

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, typically because consumers can afford better alternatives.

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to substitute one good for another more or less expensive good.

Income Effect

The change in an individual's or an economy's consumption resulting from a change in real income.

Normal Good

A product whose demand increases as consumer income rises, indicating a direct relationship between income and demand for the good.