The Beta Coefficient of Zed Corporation Is Equal to 0

question 72

Multiple Choice

The beta coefficient of Zed Corporation is equal to 0.7 and the required rate of return on the stock equals 12 percent. If the expected return on the market is 12.5 percent, what is the risk-free rate of return?

• A)11.56%
• B)10.83%
• C)9.52%
• D)12.25%
• E)8.89%

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Definitions:

Well-diversified Portfolio

An investment strategy that spreads risk by allocating investments among various financial instruments, sectors, or other categories.

Variability of Returns

The extent of fluctuation in the returns on an investment over a certain period of time, often used as a measure of investment risk.

Business-specific Risk

This is the risk associated with the unique factors impacting a specific company or industry, excluding broader market or economic risks.

Unsystematic Risk

The risk associated with a particular company or industry, which can be mitigated through diversification.