Company a Has a Beta of 0

question 143

Multiple Choice

Company A has a beta of 0.70, while Company B's beta is 1.20.The required return on the stock market is 11.00%, and the risk-free rate is 4.25%.What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.)

• A) 2.75%
• B) 2.89%
• C) 3.05%
• D) 3.21%
• E) 3.38%

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Definitions:

General Incorporation Law

State laws that allow businesses to incorporate and outline the process, benefits, and obligations of doing so, typically providing a flexible framework for the establishment and operation of corporations.

Lawyers Incorporate

The process by which lawyers form a corporation, typically to limit personal liability or for tax advantages.

Commerce Clause

A provision in the U.S. Constitution granting Congress the power to regulate interstate and international commerce, serving as a foundational element for federal laws affecting the economy.

State Tax

Taxes imposed by individual states on individuals, businesses, or property to generate revenue for state governments.