Exhibit 87
Use the Information Below for the Following Problem(S)
You

question 12

Multiple Choice

Exhibit 8.7
Use the Information Below for the Following Problem(S)
You expect the risk-free rate (RFR) to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks.
$\begin{array}{ccccc}\text { Stock } & \text { Beta } & \begin{array}{c}\text { Current } \\\text { Price }\end{array} & \begin{array}{c}\text { Expected } \\\text { Price }\end{array} & \begin{array}{c}\text { Expected } \\\text { Dividend }\end{array} \\\hline \mathrm{A} & 1.5 & \$ 10 & \$ 11.50 & \$ 1.00 \\\mathrm{~B} & 1.1 & \$ 27 & \$ 30 & \$ 0.00 \\\mathrm{C} & 0.8 & \$ 35 & \$ 36 & \$ 1.50\end{array}$

-Refer to Exhibit 8.7.What are the estimated rates of return for the three stocks (in the order A,B,C) ?

• A) 13.0%, 10.6%, 8.8%
• B) 15.0%, 11.1%, 2.9%
• C) 18.7%, 11.1%, 8.8%
• D) 21.7%, 10.0%, 6.9%
• E) 25.0%, 11.1%, 7.1%

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