The Expected Return on the Market Portfolio Is 15

question 34

Multiple Choice

The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common shares is 16%. The beta of SDA Corp. common shares is 1.25. Within the context of the capital asset pricing model, ________.

• A)SDA Corp. shares are underpriced
• B)SDA Corp. shares are fairly priced
• C)SDA Corp. shares' alpha is -0.75%
• D)SDA Corp. shares' alpha is 0.75%

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Definitions:

Price-Taker Market

A market scenario in which sellers accept the market price as given because they have no influence over it, often due to high competition and standardized products.

Marginal Product

The additional output that is produced by utilizing one more unit of a variable input, holding all other inputs constant.

Labor Market

The marketplace in which employers find workers and workers find jobs, characterized by supply and demand for labor.

Marginal Revenue Product

The extra income obtained by employing an additional unit of a production factor.