Stock a Has an Expected Return of 14

question 99

Multiple Choice

Stock A has an expected return of 14.4 percent and a beta of 1.21.Stock B has an expected return of 12.87 percent and a beta of 1.06.Both stocks have the same reward-to-risk ratio.What is the risk-free rate?

• A)2.06 percent
• B)2.28 percent
• C)1.79 percent
• D)3.35 percent
• E)1.92 percent

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Definitions:

Historical Rate

A reference to the exchange rate used in the past for converting one currency to another at a specific time.

Restated

Refers to financial statements that have been revised from their original figures to correct errors or account for retrospective changes in accounting policy.

U.S. Dollars

The currency of the United States, used as the standard unit of money for transactions within the country and internationally.

Translation Adjustment

An adjustment made in the process of converting the financial statements of a company into the currency of another country, reflecting changes in exchange rates.