The Expected Return on HiLo Equity Is 13

question 20

Multiple Choice

The expected return on HiLo equity is 13.69% while the expected return on the market is 11.5%.The beta of HiLo is 1.3.What is the risk-free rate of return?

• A)2.8%
• B)3.1%
• C)3.7%
• D)4.2%
• E)4.5%

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Definitions:

Specialization of Labor

An economic strategy where individuals or groups focus on producing a limited range of goods or services to increase efficiency and output.

Marginal Cost

The expense involved in creating one more unit of a product or service.

Constant Returns to Scale

A situation in which output increases by the same proportion as inputs when the scale of production is changed.

Long-run Average Total Cost

The average total cost when all factors of production are variable and economies of scale are fully exploited, indicating the lowest possible cost per unit.