ABC CoHas a Beta of 1

question 38

Multiple Choice

ABC Co.has a beta of 1.30 and an expected dividend growth rate of 5.00% per year.The T-bill rate is 3.00%,and the T-bond rate is 6.00%.The annual return on the stock market during the past three years was 15.00%.Investors expect the annual future stock market return to be 12.00%.Using the SML,what is ABC's required return?

• A)12.8%
• B)13.1%
• C)13.5%
• D)13.8%

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Definitions:

Joint

A fracture in a rock where the rock has been pulled apart slightly without significant displacement parallel to the fracture.

Anticlines

Upward folds or arches of rock layers, often associated with oil and natural gas deposits.

Synclines

Geological folds that dip towards each other from opposite sides, often forming a trough-like structure.

Joints

Natural fractures or separations in rocks that occur without the rock moving apart.