Find the Required Rate of Return for Equity Investors of a Firm

question 79

Multiple Choice

Find the required rate of return for equity investors of a firm with a beta of 1.3 when the risk free rate is 5% and the return on the market is 13.6%.

• A) 11.54%
• B) 13.08%
• C) 16.18%
• D) 18.02%

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Definitions:

Short Run

A period in which at least one input (e.g., capital) is fixed and cannot be changed.

Long Run

A period of time in economics during which all factors of production and costs are variable, allowing for full adjustment to change.

Profit-Maximizing

The approach taken by a corporation to find the pricing and production levels that lead to the greatest earnings.

Loss-Minimizing

A strategy or condition in which a firm seeks to minimize its losses by operating at a production level where marginal cost equals marginal revenue.