Westsyde Tool Company Is Expected to Pay a Dividend of $1.50

question 25

Multiple Choice

Westsyde Tool Company is expected to pay a dividend of $1.50 in the upcoming year. The risk-free rate of return is 6% and the expected return on the market portfolio is 14%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's shares is 1.20. Using the CAPM, an appropriate required return on Westsyde Tool Company's shares is ________.

• A)8.0%
• B)10.8%
• C)15.6%
• D)16.8%

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Definitions:

Equilibrium Price

The price at which the quantity of a good or service demanded by buyers equals the quantity supplied by sellers.

Rationing Mechanism

A system designed to allocate goods or services among interested users, often used when demand exceeds supply.

Discrimination

The unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex.

Rent Control

Government policies that limit the amount landlords can charge for renting out their property.