Which One of the Following Stocks Is Correctly Priced If

question 29

Multiple Choice

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.7 percent and the market risk premium is 8.8 percent?

• A)A
• B)B
• C)C
• D)D

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Definitions:

Income Effect

Variations in personal or economic income and their influence on the demanded quantity of particular goods or services.

Normal Good

A normal good is a type of good for which demand increases when income increases and decreases when income decreases, assuming all other factors remain constant.

Inferior Good

A type of good for which demand decreases as the income of individuals increases, conversely, its demand increases when consumer income declines.

Inferior Good

A type of good for which demand decreases as the income of consumers increases, contrasting with normal goods.