An Asset Is Priced to Earned a 10% Annual Return;

question 37

Multiple Choice

An asset is priced to earned a 10% annual return; the asset has a beta of 0.75. The market risk premium is 8% and the risk free rate is 4%. The asset is

• A) cannot be determined with the information provided
• B) correctly priced.
• C) underpriced.
• D) overpriced.

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Definitions:

Fair Value

The financial return from disposing of an asset or expense of transferring a liability in a systematic transaction with market entities at the point of measurement.

Carrying Value

The book value of assets and liabilities as reported on the balance sheet, reflecting original cost adjusted for depreciation, amortization, and impairments.

Restricted Fund

Funds that are earmarked for a specific purpose by the donor or governing body and cannot be used for general expenses.

Capital Fund

A reserve of capital that can be used for investment, growth, or to cover future liabilities or expenditures.