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:

Annual Tax Bill

The total amount of taxes levied annually by various governmental entities, including federal, state, and local taxes.

Tax Rate

The rate at which a person or business is taxed by the government.

Tax Proration

The division or allocation of taxes between parties (such as buyers and sellers) based on their period of ownership or usage.

Annual Tax Bill

The total amount of tax owed by an individual or corporation in a given fiscal year.