Consider the Single-Index Model

question 4

Multiple Choice

Consider the single-index model. The alpha of a stock is 0%. The return on the market index is 10%. The risk-free rate of return is 5%. The stock earns a return that exceeds the risk-free rate by 5%, and there are no firm-specific events affecting the stock performance. The β of the stock is

• A) 0.67.
• B) 0.75.
• C) 1.0.
• D) 1.33.
• E) 1.50.

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Definitions:

Asset Accounts

Accounts on the balance sheet representing valuable resources owned by the company expected to provide future benefits.

Three Column Form

A documentation format usually used in accounting and bookkeeping that showcases debits, credits, and balance for individual accounts.

Debit

An accounting entry that either increases an asset or expense account, or decreases a liability or equity account.

Credit

An accounting entry that increases liabilities and equity or decreases assets, reflecting a transaction such as the sale of goods on account.