The Market Expected Return Is 14% with a Standard Deviation

question 80

Multiple Choice

The market expected return is 14% with a standard deviation of 12%.The risk-free rate is 5.5%.Security A has just paid a dividend of $1.50, which is expected to grow at a rate of 10% per year indefinitely.What is the current price of Security A if it has a beta of 1.4?

• A)$9.93
• B)$10.93
• C)$20.27
• D)$22.30

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Definitions:

Statement of Cash Flows

A document that provides insight into how alterations in balance sheet items and earnings affect cash and cash-like assets, dissecting the analysis into operating, investing, and financing divisions.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded for an asset since it was acquired and put into use.

Statement of Cash Flows

An accounting document that illustrates adjustments in balance sheet figures and their effect on cash and similar resources, dividing the analysis among operating, investing, and financing sectors.

Indirect Method

A cash flow statement approach that adjusts net income for non-cash transactions and changes in working capital.