Security a Has an Expected Rate of Return of 12

question 45

Multiple Choice

Security A has an expected rate of return of 12% and a beta of 1.10. The market expected rate of return is 8% and the risk-free rate is 5%. The alpha of the share is ________.

• A)-1.7%
• B)3.7%
• C)5.5%
• D)8.7%

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Definitions:

Variable Costs

Expenses that change in proportion to the amount of goods produced or the volume of sales.

Fixed Costs

Expenses that do not change with the level of production or sales in the short term, such as rent or salaries.

Unit Selling Price

The amount of money charged to the customer for a single unit of a product or service.

Unit Sales Price

The price at which a single unit of product is sold, reflecting the cost plus any markup or minus any discounts.