Desreumaux Inc's Stock Has an Expected Return of 12

question 41

Multiple Choice

Desreumaux Inc's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium.If the risk-free rate is 5.00%, what is the market risk premium?

• A)5.80%
• B)5.95%
• C)6.09%
• D)6.25%
• E)6.40%

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Definitions:

Standardized Product

A product that is uniform in quality and specifications across all production units, making it interchangeable with similar products.

Perfectly Competitive

A perfectly competitive market is characterized by many buyers and sellers, homogeneous products, free entry and exit, and perfect information.

Price Maker

A market participant with the power to influence the price of a good or service by controlling its supply, its demand, or both.

Perfect Competition

A market structure characterized by many buyers and sellers, where all firms sell identical products and no single buyer or seller can influence the market price.