Assume That the Risk-Free Rate of Return Is 4%,and the Expected

question 7

Multiple Choice

Assume that the risk-free rate of return is 4%,and the expected return on the market portfolio is 10%.If the systematic risk inherent in the stock of ABC Corporation is 1.80,using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.(Do not round intermediate calculations and round your percentage final answer to 1 decimal place.)

• A) 14.0%
• B) 14.8%
• C) 16.0%
• D) 16.8%

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Definitions:

Treasury Stock

Shares that were issued and later reacquired by the issuing company, reducing the amount of stock in the market.

Issued Stock

The number of shares that have been allocated (sold or given) and are held by shareholders, including both public investors and company officers or insiders.

Outstanding Stock

The total shares of a company's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.

Unlimited Liability

A legal structure in which the owners of a business are personally liable for all the business's debts, with no limit on the amount for which they can be liable.