Morgan Stock Has an Average Return Minus the Average Risk-Free

question 22

Multiple Choice

Morgan stock has an average return minus the average risk-free rate of 12.5 percent, a beta of 2.5, and a standard deviation of returns of 20 percent. The Treynor index of Morgan stock is

• A)0.0625.
• B)0.05.
• C)0.35.
• D)0.03.
• E)None of these are correct.

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Definitions:

Zero Coupon Bond

A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, offering profit at maturity when the bond is redeemed for its full face value.

Compounded

Refers to the process where the value of an investment grows exponentially over time as earnings or interest are reinvested to generate additional earnings.

Dividend Yield

A ratio indicating the amount of dividends a company distributes annually in relation to its share price.

Constant Growth Model

A model that estimates the value of a dividend-paying stock by assuming constant growth in dividends at a consistent rate.