You Own $5,000 of Software Corp's Stock That Has a Beta

question 39

Multiple Choice

You own $5,000 of Software Corp's stock that has a beta of 3.75. You also own $10,000 of Home Improvement Corp. (beta = 1.5) and $15,000 of Publishing Corp. (beta = 0.35) . Assume that the market return will be 13 percent and the risk-free rate is 4.5 percent. What is the risk premium of the portfolio?

• A) 11.05 percent
• B) 16.50 percent
• C) 17.00 percent
• D) 24.70 percent

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Definitions:

Variable Cost

Variable cost refers to expenses that fluctuate with the level of output or production, such as materials and labor costs.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent or salaries.

Production Level

The quantity of goods or services that are produced within a given timeframe by a business.

Fixed Costs

Costs that do not change with the level of production or sales over a certain period.