The Expected Return on the Market Is 14% with a Standard

question 39

Multiple Choice

The expected return on the market is 14% with a standard deviation of 18% and the risk-free rate is 5%.Which of the following portfolios are underpriced?

• A)1 and 2 only
• B)1 and 3 only
• C)2 and 3 only
• D)3 and 4 only

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Definitions:

Expected ROE

The anticipated return on equity, calculated based on expected future earnings divided by shareholders' equity.

Expected ROE

The projected return on equity, which measures a company's efficiency at generating profits from every unit of shareholder's equity.

Dividend Growth Rate

The annualized percentage rate of growth that a particular stock's dividend undergoes over a period of time.

Plowback Ratio

The proportion of earnings retained by a company after dividends have been paid out, often used to fund growth projects.