Use the Security Market Line to Determine the Required Rate

question 93

Multiple Choice

Use the security market line to determine the required rate of return for the following firm's stock.The firm has a beta of 1.20,the required return in the market place is 10.00%,and the risk-free rate of return is 1.50%.

• A)11.70%
• B)10.70%
• C)7.20%
• D)2.80%

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Definitions:

Free-Rider Problem

A market failure that occurs when individuals consume a good without paying for it, typically in the context of public goods.

Nonrivalry

A characteristic of a good or service where one person's use does not diminish the availability or value for others, common in public goods.

Nonrival Consumption

A characteristic of certain goods where one person's use does not diminish the availability or quality of the good for others.

Rival Consumption

A situation where one person's consumption of a good reduces the ability of another person to consume the same good.