An Investor Was Expecting an 18% Return on His Portfolio

question 36

Multiple Choice

An investor was expecting an 18% return on his portfolio with Beta of 1.25 before the market risk premium increased from 8% to 10%.Based on this change, what return will now be expected on the portfolio?

• A)20.0%
• B)20.5%
• C)22.5%
• D)26.0%

---

Definitions:

Balance Sheet

This document outlines a business's resources, obligations, and the equity held by shareholders at a specified time.

Contra Asset

An account on a company's balance sheet that reduces the total amount of an associated asset account, often used for accumulated depreciation.

Depreciation Expense

An accounting method of allocating the cost of a tangible asset over its useful life to reflect the loss in value over time.

Fiscal Period

Any period of time used by an organization or government for accounting purposes and preparing financial reports, which could be a quarter, half-year, or any other designated period.