The Risk-Free Rate Is 3

question 29

Multiple Choice

The risk-free rate is 3.0 percent.What is the expected risk premium on this security given the following information?

• A) 2.90 percent
• B) 3.01 percent
• C) 3.20 percent
• D) 3.80 percent
• E) 4.15 percent

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Definitions:

Capital Lease

A lease arrangement that transfers substantially all the risks and rewards of ownership of an asset to the lessee, essentially treated as a purchase.

Retained Earnings

The portion of net earnings not paid out as dividends but instead reinvested in the company or used to pay off debt.

Deferred Income Taxes

Taxes applicable on income that is recognized in financial statements in one period but is taxable in another period.

Income Taxes Payable

Income taxes payable is a liability account on a company's balance sheet representing the amount of income taxes that the company owes to the government but has not yet paid.