A Stock Has a Beta of 1

question 70

Multiple Choice

A stock has a beta of 1.86,the expected return on the market is 14.72,and the risk-free rate is 4.65.What must the expected return on this stock be?

• A)15.67 percent
• B)16.75 percent
• C)17.10 percent
• D)20.46 percent
• E)23.38 percent

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Definitions:

Expected Value

The predicted value of a variable, computed as the sum of all possible values each multiplied by the probability of its occurrence.

Payoffs

The outcomes or returns from a particular action or investment.

Prior Probabilities

The probabilities assigned to events or hypotheses before any new evidence is considered.

States of Nature

Different hypothetical conditions or outcomes that could affect a decision in decision theory.