IBM Has a Beta of 1

question 79

Multiple Choice

IBM has a beta of 1.0 and Apple Computer has a beta of 3.0. Which of the following statements must be correct?

• A)The market risk premium for Apple must be larger than the market risk premium of IBM.
• B)If investors become more risk averse, the expected return of Apple will increase more than the expected return on IBM.
• C)Apple's expected rate of return must be three times as large as IBM's.
• D)none of these choices are complete.

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Definitions:

Liquidating Dividend

A type of dividend paid by a company to its shareholders out of its capital base, essentially returning a portion of the capital initially invested back to the shareholders.

Earnings Per Share

A metric for assessing a company's earnings, determined by dividing its net income by the total outstanding common stock shares.

Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, usually with fixed dividends.

Cumulative Preferred Stock

A type of preferred stock whose dividends accumulate if not paid in the agreed periods.