A Risky Asset Has a Beta of 1

question 26

Multiple Choice

A risky asset has a beta of 1.40 and an expected return of 17.6 percent.What is the risk-free rate if the risk-to-reward ratio is 8.4 percent?

• A) 2.74 percent
• B) 4.03 percent
• C) 4.33 percent
• D) 5.32 percent
• E) 5.84 percent

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Definitions:

Factory Overhead

All costs related to production that are not direct materials or direct labor costs.

Machine Hours

A measure of the total time that machines are operating during a specific period.

Applied Overhead

The segment of manufacturing overhead expenses assigned to each production unit according to a pre-established rate.

Factory Overhead

All indirect costs associated with manufacturing, including utilities, maintenance, and salaries of non-direct labor.