Stock Y Has a Beta of 1

question 98

Multiple Choice

Stock Y has a beta of 1.28 and an expected return of 13.7 percent.Stock Z has a beta of 1.02 and an expected return of 11.4 percent.What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?

• A)2.38 percent
• B)2.76 percent
• C)3.23 percent
• D)3.69 percent
• E)4.08 percent

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Definitions:

Limited Liability Partnership

A partnership in which some or all partners have limited liabilities, protecting them from the debts of the partnership beyond their investment.

General Partner

A type of owner in a partnership who has unlimited liability and is actively involved in the management of the business.

Entrepreneur

An individual who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

Entrepreneurs

Individuals who create, launch, and manage new businesses, often taking on considerable risk in the expectation of profit.