A Firm Has a Beta of 1

question 23

Multiple Choice

A firm has a beta of 1.2. The return in the market is 14%, and the risk-free rate is 6%. The estimated cost of common stock equity is ____.

• A) 6%
• B) 7.2%
• C) 15.6%
• D) 14%

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Definitions:

Cobb-Douglas Utility

A form of utility function that represents preferences with a particular functional form, often used in economics to model production and utility with inputs or goods raised to constant powers.

Quasilinear Utility

A utility function where the utility is linear in one argument, typically representing money, allowing for the analysis of changes in wealth without the utility of wealth itself changing.

Consumption Increase

A rise in the amount of goods and services consumed by households or the economy over a period.

Price Increase

A rise in the cost of goods or services, affecting demand, supply, and inflation.