Stock A's Stock Has a Beta of 1

question 7

Multiple Choice

Stock A's stock has a beta of 1.30,and its required return is 13.75%.Stock B's beta is 0.80.If the risk-free rate is 2.75%,what is the required rate of return on B's stock? (Hint: First find the market risk premium. ) Do not round your intermediate calculations.

• A) 9.33%
• B) 9.52%
• C) 10.66%
• D) 11.33%
• E) 8.57%

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Definitions:

Implicit Cost

Costs that represent the loss of potential gain from using assets in an alternative option rather than in their current use.

Implicit Costs

The opportunity costs of resources that are owned by the firm and used in production, not involving direct payment of money but affecting the firm's profitability.

Explicit Costs

Direct payments made to others in the course of running a business, such as wages, rent, and materials.

Accounting Profits

The net earnings of a company as calculated by subtracting total expenses from gross revenue, according to accepted accounting principles.