Determine the Risk Free Rate If a Company's Rate of Return

question 7

Multiple Choice

Determine the risk free rate if a company's rate of return is 12%, its Beta is -1.2 and the expected return on the stock market is 14%.

• A)11.19%
• B)12.29%
• C)13.09%
• D)14.19%

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Definitions:

Purchased Goodwill

The premium paid over the fair value of identifiable net assets during the acquisition of a company, reflecting intangible assets like brand reputation or customer loyalty.

Net Income

The total profit of a company after all expenses, including taxes, interest, and operating costs, have been deducted from total revenue.

Dividends

Payments made by a corporation to its shareholders, typically from profits, as a distribution of earnings.

Equity Method

An accounting technique used to record investments in other companies, recognizing income proportional to the ownership percentage.