You Own $10,000 of Denny's Corp Stock That Has a Beta

question 83

Multiple Choice

You own $10,000 of Denny's Corp stock that has a beta of 3.2. You also own $15,000 of Qwest Communications (beta = 1.9) and $15,000 of Southwest Airlines (beta = 0.4) . Assume that the market return will be 13 percent and the risk-free rate is 5.5 percent. What is the risk premium of the portfolio?

• A) 10.51%
• B) 11.49%
• C) 12.45%
• D) 13.62%

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Definitions:

Operating Income

Profit realized from a business's core operations, calculated before taxes and interest.

Contribution Margin Ratio

A financial metric showing the percentage of sales revenue remaining after variable production costs have been deducted, indicating how much contributes towards covering fixed costs and generating profits.

Net Operating Income

Profit generated from a company's regular business operations, excluding deductions for interest and taxes.

Unit Sales Volume

The quantity of products sold by a company, not taking into account any discounts or returns.