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:

Net Income

The net income of a company following the deduction of all expenses, taxes, and costs from its total revenue.

Assets

Resources owned by a business that have economic value and can be used to meet debts, commitments, or facilitate operations.

Rent Expense

The cost incurred by a business for leasing a property or equipment, recognized as an expense in the income statement.

Rent

A regular payment made by a tenant to an owner for the use of property or land.