If the Interest Rate on Treasury Bills Is 6% and the Market

question 46

Multiple Choice

If the interest rate on Treasury bills is 6% and the market risk premium is 9%,then a stock with a beta of 1.5 would be expected to return:

• A) 12.0%.
• B) 17.0%.
• C) 19.5%.
• D) 21.5%.

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Definitions:

Required Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

Expected Growth Rate

The annual rate at which an investment, company revenue, or economy is expected to grow over a future period.

Rate of Return

The achievement or shortfall in value of an investment during an established time, shown as a percentage of the investment’s original financial input.

Dividend

A portion of a company's earnings distributed to shareholders, typically in the form of cash or additional shares.