Assume a Firm Is Financed with $2,000 Debt That Has

question 31

Multiple Choice

Assume a firm is financed with $2,000 debt that has a market beta of 0.1 and $3,000 equity. The risk-free rate is 3%, the equity premium is 5%, and the firm's overall cost of capital is 10%.
-Refer to the information above. What is the expected return on the firm's equity?

• A)8.0%
• B)14.3%
• C)8.6%
• D)15.0%

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Definitions:

X-Intercept

The point at which a line or curve on a graph crosses the x-axis, indicating a value of x where the function equals zero.

Slope

The slope refers to the steepness or incline of a line on a graph, representing the rate of change between variables.

Linear Regression Equation

A mathematical equation that describes the linear relationship between two or more variables, typically one dependent and one or more independent variables.

Slope

The rate of change in one variable relative to a change in another variable, often used in the context of linear regression.