The Risk-Free Rate Is 4

question 38

Multiple Choice

The risk-free rate is 4.0 percent and the expected return on the market is 8 percent.Stock A has a beta of 1.35.For a given year,Stock A returned 12.0 percent while the market returned 8.80 percent.The systematic portion of Stock A's unexpected return was ________ percent and the unsystematic portion was ________ percent.

• A) 0.80; 1.30
• B) 0.90; 1.40
• C) 1.08; 1.52
• D) 1.40; 0.90
• E) 4.62; 1.41

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Definitions:

Line-by-Line Method

An approach in preparing consolidated financial statements where the income and expense items of the parent and subsidiary are added together line by line.

Proportionate Consolidation

A method of accounting where a parent company includes its share of the subsidiaries' revenues, expenses, assets, and liabilities in its financial statements proportionately.

Line-by-Line Method

A method of consolidation where the parent company's and its subsidiaries' financial statements items are added together line by line.