If a Firm Has a Market Beta of 0

question 38

Multiple Choice

If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?

• A) 6%
• B) 7%
• C) 12.3%
• D) 13%

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Definitions:

Insider Trading

The illegal practice of trading a public company's stock or other securities based on material, non-public information about the company.

Prospects

Potential customers or clients, or the likelihood of future success in a particular area.

Administrative Agencies

Governmental bodies responsible for the oversight and administration of specific functions, such as regulation or enforcement of laws and public policies.

Criminal Laws

Laws that define behaviors prohibited by the state because they threaten, harm, or otherwise endanger the safety and welfare of the public.