The Risk-Free Rate Is 3

question 2

Multiple Choice

The risk-free rate is 3.4% and the expected return on the market is 10.8%. Stock A has a beta of 1.18. For a given year, Stock A returned 13.6% while the market returned 11.8%. The systematic portion of the unexpected return was ________% and the unsystematic portion was ________%.

• A)1.045; .207
• B)1.145; .126
• C)1.180; .288
• D)1.344; 1.443
• E)1.500; 1.449

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Definitions:

Product Differentiation

The process of distinguishing a product or service from others in the market to make it more attractive to a particular target market.

Control Over Price

The ability of a person or organization to influence the price at which goods or services are sold.

Contestable Market

A market structure where there are no barriers to entry or exit, ensuring that prices remain competitive even in the absence of a large number of sellers.

Minimum-cost Production

A principle in economics where goods and services are produced at the lowest possible cost, maximizing efficiency and resource use.