What Will Happen to the Expected Return on a Stock

question 56

Multiple Choice

What will happen to the expected return on a stock with a Beta of 1.5 and a market risk premium of 9% if the Treasury bill yield increases from 3% to 5%?

• A)The expected return will remain unchanged
• B)The expected return will increase by 1.0%
• C)The expected return will increase by 2.0%
• D)The expected return will increase by 3.0% Expected return = 3% + 1.5(9)
• = )165
• Expected return = 5% + 1.5(9)
• = 18.5%

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Definitions:

High-Income Household

A home or family unit that earns a significantly higher income than the average for their area or country, often placing them in the top income brackets.

Marginal Dollar

This refers to the additional or next dollar of income or expense in financial analysis.

Financial Assistance

Monetary aid provided to individuals, businesses, or governments to support them financially.

Transfers

Movements of funds between different sectors or entities, often referring to government payments like social security or unemployment benefits.