CCC Corp Has a Beta of 1

question 22

Multiple Choice

CCC Corp has a beta of 1.5 and is currently in equilibrium.The required rate of return on the stock is 12.00% versus a required return on an average stock of 10.00%.Now the required return on an average stock increases by 30.0% (not percentage points) .Neither betas nor the risk-free rate change.What would CCC's new required return be?

• A)14.89%
• B)15.68%
• C)16.50%
• D)17.33%
• E)18.19%

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Definitions:

Required Rate of Return

It is the minimum return an investor expects to achieve by investing in a particular security or portfolio, factoring in various risks and the time value of money.

Share of Stock

A share of stock represents ownership in a corporation, giving the shareholder a claim to a part of the company’s assets and earnings.

Dividend Growth Model

A method used to value a company's stock by assuming that dividends will grow at a constant rate in perpetuity.

Publicly Traded Stock

Stocks that are listed on a stock exchange, allowing investors to buy and sell shares to the general public.