A Stock Has an Average Historical Risk Premium of 6

question 12

Multiple Choice

A stock has an average historical risk premium of 6.1 percent. The expected risk-free rate for next year is 2.2 percent. What is the expected rate of return on this stock for next year?

• A)6.50%
• B)7.53%
• C)8.00%
• D)8.30%
• E)9.34%

---

Definitions:

Consolidation

Consolidation is the process of combining multiple financial statements from different subsidiaries or related companies into a single financial statement of the parent company.

Return

The financial outcome of an investment over an agreed-upon time, stated as a portion of the investment's cost price.

Telecom Services

Services provided by companies that enable communication over distances via telephone, internet, cable, and broadcasting.

Money Center Banks

Large financial institutions that offer a wide range of financial services and are typically located in major economic centers.