Company A's Historical Returns for the Past Three Years Were

question 50

Multiple Choice

Company A's historical returns for the past three years were: 6%,15%,and 15%.Similarly,the market portfolio's returns were: 10%,10%,and 16%.According to the security market line (SML) ,Stock A was:A.However,one needs to know the risk-free rate to construct the SML.

• A)overpriced.
• B)underpriced.
• C)correctly priced.
• D)need more information.The given numbers enable the calculation of beta for Company

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Definitions:

Net Income

The total profit of a company after all operating expenses, taxes, and interest are deducted from total revenue.

Normal Balance

The side of an account (debit or credit) that increases. For assets and expenses, it's usually the debit side, and for liabilities, equity, and revenue, it's typically the credit side.

Owner's Capital Account

An equity account representing the total investment of the owner in the business, including initial contributions and subsequent earnings, minus any withdrawals.

Asset Account

Accounts used in accounting to track the value of economic resources owned or controlled by an entity which can provide future benefits.