Stock LB Has a Beta of 0

question 19

Multiple Choice

Stock LB has a beta of 0.5 and Stock HB has a beta of 1.5.The market is in equilibrium,with required returns equaling expected returns.Which of the following statements is CORRECT?

• A) If both expected inflation and the market risk premium (r_M -r_RF) increase, the required return on Stock HB will increase by more than that on Stock LB.
• B) If both expected inflation and the market risk premium (r_M -r_RF) increase, the required returns of both stocks will increase by the same amount.
• C) Since the market is in equilibrium, the required returns of the two stocks should be the same.
• D) If expected inflation remains constant but the market risk premium (r_M - r_RF) declines, the required return of Stock HB will decline but the required return of Stock LB will increase.
• E) If expected inflation remains constant but the market risk premium (r_M - r_RF) declines, the required return of Stock LB will decline but the required return of Stock HB will increase.

Prepare schedules for allocating service department costs to production/operating departments using the step-down method.

Distinguish between variable and fixed costs in the context of cost allocation.

Understand the components and structure of a manufacturing company's income statement.

Grasp the concept and application of predetermined overhead rates in job costing.

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Definitions:

Nonmonetary Award

A reward given to employees that does not involve financial compensation, often used to acknowledge accomplishments or motivate performance.

Stock Bonuses

A form of incentive compensation where employees are awarded shares of the company's stock, aligning employee interests with shareholder interests.

Company Picnic

A social event organized by a company for its employees, often held outdoors and including food and recreational activities, intended to foster team spirit and camaraderie.

Stock Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company at a specified price before a certain date.