You Own $14,000 of Diner's Corp

question 53

Multiple Choice

You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6) . Assume that the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk premium of the portfolio?

• A) 11.645 percent
• B) 20.55 percent
• C) 23.905 percent
• D) 38.00 percent

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Definitions:

Securities Act

refers to a set of regulations enacted by the United States Congress in 1933 to govern the sale of securities to the public, primarily aimed at ensuring transparency and fairness in the investment market.

Department of Justice

A federal executive department responsible for enforcing the laws of the United States, headed by the Attorney General.

Insider Trading

Illegal buying or selling of a corporation’s securities by corporate insiders, such as officers and directors, on the basis of material, nonpublic information and in breach of a fiduciary duty or some other relationship of trust and confidence.

Martha Stewart

An American retail businesswoman and former television personality, known for her omnimedia empire and insider trading conviction.