Assume That the Risk-Free Rate of Return Is 4%, and the Expected

question 88

Multiple Choice

Assume that the risk-free rate of return is 4%, and the expected return on the market portfolio is 10%. If the systematic risk inherent in the stock of ABC Corporation is 1.80, using the Capital Asset Pricing Model (CAPM) calculate the expected return of ABC.

• A)14.0%
• B)14.8%
• C)16.0%
• D)16.8%

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Definitions:

Equity Theory

A theory in social psychology that explains how individuals gauge the fairness of their work outcomes and inputs relative to others.

Expectancy Theory

A motivational theory suggesting that individuals are motivated to perform if they believe their efforts will lead to desired performance and rewards.

Retributive Justice Theory

A theory of justice that holds that the best response to a crime is a punishment proportional to the offense, inflicted because the offender deserves the punishment.

Bureau of Labor Statistics

A unit of the United States Department of Labor that collects, processes, analyzes, and disseminates essential statistical data related to labor market activity, working conditions, and price changes.