Kirchner Exports Has a Beta of 1

question 39

Multiple Choice

Kirchner Exports has a beta of 1.2. The risk free rate is 5% and the return on an average stock is 10.6%. Estimate Kirchner's cost of retained earnings.

• A)10.60%
• B)11.72%
• C)12.72%
• D)13.72%
• E)16.60%

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Definitions:

Vertical Intercept

The point where a graphed line crosses the vertical axis, often used in mathematical functions to determine a starting point.

Required Rate

The minimum return an investor expects to achieve on an investment, considering the risk level associated with the investment.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the variability or spread of a data set.

SML

The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model (CAPM), showing the relationship between the expected return of investments and their risk as measured by beta.