A Stock Has a Beta of 1

question 3

Multiple Choice

A stock has a beta of 1.4 and an expected return of 16%. The risk-free rate is 5%. What is the slope of the Security Market Line?

• A) 7.86%
• B) 7.98%
• C) 8.23%
• D) 8.67%
• E) 8.98%

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Definitions:

Tax Depreciation

The depreciation expense allowed by tax authorities to account for the reduction in value of a tangible asset over its useful life, intended to provide a tax shield for businesses.

Book Depreciation

The portion of an asset's initial cost that is allocated as an expense over its useful life on the financial statements, according to accounting standards.

Tax Rate

The percentage at which an individual or corporation is taxed by the government, influencing financial decisions and tax planning.

Deferred Income Tax Liability

A tax obligation recorded on the balance sheet for income that has been recognized but not yet taxed.