Consider the Data on Expected Returns and Betas for a Variety

question 10

Multiple Choice

Consider the data on expected returns and betas for a variety of assets in the table below. What is the expected return on shares of Bank of America using the SML? $$\begin{array} { | c | c | c | } \hline \text { Asset } & \begin{array} { c } \text { Expected } \\\text { Return }\end{array} & \text { Beta } \\\hline \begin{array} { c } \text { Bank of } \\\text { America }\end{array} & & 0.9 \\\hline \text { Risk Free Asset } & 4 \% & 0 \\\hline \begin{array} { c } \text { Market } \\\text { Portfolio }\end{array} & 10 \% & 1 \\\hline\end{array}$$

• A)5.4%
• B)6.0%
• C)8.2%
• D)9.4%
• E)11.2%

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Definitions:

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity demanded by consumers at various prices.

Higher Price

An increase in the cost of a good or service, often reflecting factors like demand and supply changes, production costs, or market conditions.

Supply And Demand Theory

A basic economic principle that describes how the quantity of goods provided by producers and the quantity desired by consumers affect the market price and allocation of resources.

Sales Tax

A tax imposed by a government on sales of goods and services, typically calculated as a percentage of the purchase price.