What Return Should Be Expected from Investing in the Market

question 110

Multiple Choice

What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% of additional funds borrowed at the risk-free rate of 6%?

• A) 18.6%
• B) 19.6%
• C) 21.6%
• D) 24.0%

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) for financial reporting globally.

Convertible Preferred Stock

A type of preferred stock that gives the holder the right to convert their shares into a predetermined number of common stock shares, usually after a specific date.

Noncumulative Preferred Stock

Preferred shares that do not entitle the holder to claim dividends missed in the past if the company decides not to distribute dividends in a given year.

Stock Split

A corporate action that increases the number of a company's outstanding shares by dividing each share, which in turn reduces the price per share, making the stock more accessible to investors.