A Stock Has a Beta of 1

question 3

Multiple Choice

A stock has a beta of 1.4 and an expected return of 16%. The risk-free rate is 5%. What is the slope of the Security Market Line?

• A) 7.86%
• B) 7.98%
• C) 8.23%
• D) 8.67%
• E) 8.98%

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Definitions:

Lenient Credit Terms

Lenient credit terms are more favorable conditions provided by a lender, allowing for longer repayment periods or lower interest rates to facilitate easier repayment for the borrower.

Uncollectible Accounts

Accounts receivable that are considered unlikely to be collected and thus written off as a bad debt expense.

Idle Cash

Idle cash refers to funds that are not currently invested, earning interest, or being used in operations, often representing missed opportunities.

Treasury Bills

Short-term government securities with maturities ranging from a few days to 52 weeks, often considered risk-free investments.