If the Market Rate of Return Is 10% and the Beta

question 29

Multiple Choice

If the market rate of return is 10% and the beta on a particular stock is .78, the return on the stock will be:

• A)greater than 10%.
• B)greater or less than 10%, depending on the risk-free rate of return.
• C)less than 10%.
• D)dependent on some other factor.

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Definitions:

Stockholders' Equity

The residual interest in a corporation's assets after deducting liabilities, representing the ownership stake of shareholders.

Noncumulative Preferred Stock

This type of preferred stock does not entitle its holders to claims on dividends missed in the past if they were not declared in those years.

Common Stock

A form of corporate equity ownership, a type of security representing an ownership share in a corporation.

Dividends

A portion of a company's earnings distributed to shareholders as a reward for their investment.