Assume the Following Data for a Stock: Risk-Free Rate =

question 73

Multiple Choice

Assume the following data for a stock: Risk-free rate = 4 percent; factor-1 beta = 1.5; factor-2 beta = 0.5; factor-1 risk premium = 8 percent; factor-2 risk premium = 2 percent. Calculate the expected rate of return on the stock using a two-factor APT model.

• A)14 percent
• B)17 percent
• C)10 percent
• D)13 percent

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Definitions:

Variable Costs

Costs that fluctuate with the level of production or sales volume, such as materials and labor.

Fixed Costs

Expenses that do not change in total regardless of changes in the volume of goods or services produced or sold.

Operating Income

The profit realized from a business's ongoing operations, calculated before taxes and interest payments are deducted.

Variable Cost

Costs that fluctuate in direct proportion to changes in production volume or activity levels.