Security X Has an Expected Rate of Return of 13

question 8

Multiple Choice

Security X has an expected rate of return of 13% and a beta of 1.15.The risk-free rate is 5% and the market expected rate of return is 15%.According to the capital asset pricing model,security X is _________.

• A) fairly priced
• B) overpriced
• C) underpriced
• D) None of the above

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Definitions:

Adjusting Entries

Journal entries made at the end of an accounting period to allocate income and expenditure to the period in which they actually occurred.

Accruals

Accounting adjustments for revenues that have been earned or expenses that have been incurred but not yet recorded through daily entries.

Deferrals

Expenses or revenues that have been recorded but not yet realized. This can involve money that has been received or paid but not yet earned or incurred.

Adjusting Entries

Documentation in accounting completed at the end of a financial period to rightly assign incomes and expenses to the appropriate time.