The Expected Return on JK Stock Is 15

question 52

Multiple Choice

The expected return on JK stock is 15.78 percent while the expected return on the market is 11.34 percent.The stock's beta is 1.51.What is the risk-free rate of return?

• A)2.22 percent
• B)2.31 percent
• C)2.42 percent
• D)2.50 percent
• E)2.63 percent

---

Definitions:

STRIPPED Cash Flows

Cash flows from an investment that have had certain elements removed, often related to interest or taxes, to reflect the underlying performance more accurately.

Arbitrage

The practice of profiting from price differences of the same asset in different markets by simultaneously buying and selling it.

Treasury Bond

A long-term government debt security with a fixed interest rate, considered low-risk.

Expectations Theory

A theory in finance that predicts the future interest rates from the yield curve of long-term and short-term government bonds.