The Common Stock of Yanderloft and Sons Has a Beta

question 42

Multiple Choice

The common stock of Yanderloft and Sons has a beta that is 25 percent larger than the overall market beta. Currently, the market risk premium is 9.2 percent while the U.S. Treasury bill is yielding 4.7 percent. What is the cost of equity for this firm?

• A) 13.76 percent
• B) 14.96 percent
• C) 15.80 percent
• D) 16.20 percent
• E) 17.85 percent

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Definitions:

Price Ceiling

A government-imposed limit on how high a price can be charged for a product or service.

Equilibrium Price

The market price at which the quantity demanded of a good equals the quantity supplied, resulting in no surplus or shortage in the market.

Shortage

This occurs when the demand for a good or service exceeds its supply within a specific market.

Price Floor

A government- or authority-imposed minimum price that can be charged for a commodity, to prevent prices from dropping too low.