Assume That the Risk-Free Rate Is 6% and the Market

question 96

Multiple Choice

Assume that the risk-free rate is 6% and the market risk premium is 5%.Given this information,which of the following statements is CORRECT?

• A) An index fund with beta = 1.0 should have a required return of 11%.
• B) If a stock has a negative beta,its required return must also be negative.
• C) An index fund with beta = 1.0 should have a required return less than 11%.
• D) If a stock's beta doubles,its required return must also double.
• E) An index fund with beta = 1.0 should have a required return greater than 11%.

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Definitions:

Free Cash Flow

The amount of cash generated by a business after accounting for operational expenses and capital expenditures, available for shareholders, reinvestment, or debt repayment.

Net Cash Provided

The surplus amount of cash generated by an entity's operations after accounting for all outgoing and incoming cash flows.

Comparative Balance Sheet

A financial statement that presents the assets, liabilities, and equity of a company at two or more different dates for the purpose of comparison.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was placed in service, reducing its book value.