Asset a Has an Expected Return of 12% and a Beta

question 214

Multiple Choice

Asset A has an expected return of 12% and a beta of 1.05. The risk-free rate is 4%. What is the market risk premium?

• A) 7.6%
• B) 8.2%
• C) 9.6%
• D) 10.2%
• E) 11.6%

---

Definitions:

Net Investment

The total amount of money spent on acquiring or maintaining fixed assets after accounting for depreciation.

MACRS

Modified Accelerated Cost Recovery System, a method of depreciation applied in the U.S. to determine the tax-deductible value of assets over time.

Marginal Tax Rate

The tax rate that applies to the last unit of currency of the taxpayer's income, influencing additional income's tax impact.

Net Cash Flows

Represents the amount of money that flows into and out of a business during a specific period, accounting for all income and expenses.