What Rate of Return Should an Investor Expect for a Stock

question 35

Multiple Choice

What rate of return should an investor expect for a stock that has a beta of 0.8 when the market is expected to yield 14% and Treasury bills offer 6%?

• A) 9.2%
• B) 11.2%
• C) 12.4%
• D) 12.8%

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Definitions:

Strap

A trading strategy involving the purchase of two call options and one put option with the same strike price and expiration date, expecting a large move in the underlying asset.

Riskless Lending

A theoretical lending scenario where there is no risk of default by the borrower, often used as a concept in economic models.

Exercise Price

The specified price at which the holder of an option can buy (for a call option) or sell (for a put option) the underlying asset.

Narrow Range

Refers to a situation where the difference between the high and low prices, values, or figures within a given period is relatively small.