The Required Rate of Return for a Stock Which Has

question 37

Multiple Choice

The required rate of return for a stock which has 1.5 times the risk of the market in general will be:

• A) 1.5 times the risk-free rate.
• B) 1.5 times the market rate of return.
• C) 1.5 times the market risk premium,plus the risk-free rate.
• D) 1.5 times the risk-free rate,plus the market risk premium.

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Definitions:

Economic Life

The period over which an asset is expected to be usable for its intended purpose.

Inflation On Fixed Assets

The impact of rising prices (inflation) on the purchasing power and value of fixed assets over time, affecting their replacement cost and depreciation calculations.

GAAP

Generally Accepted Accounting Principles, a set of accounting standards, guidelines, and procedures used in the United States for financial reporting.

Straight-Line Depreciation

A method for calculating the annual depreciation expense by equally distributing the cost of an asset minus its salvage value over its estimated useful life.