Currently,the Risk-Free Rate Is 6% and the Market Risk Premium

question 24

Multiple Choice

Currently,the risk-free rate is 6% and the market risk premium is 5%.Given this information,which of the following statements is correct?

• A)An index fund with beta = 1.0 should have a required return of 11%.
• B)An index fund with beta = 1.0 should have a required return less than 11%.
• C)If a stock's beta doubles, its required return must also double.
• D)An index fund with beta = 1.0 should have a required return greater than 11%.

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Definitions:

Acquisition Differential

The gap between the acquisition cost of a company and the fair value of its clearly identifiable net assets.

Impairment

A decrease in the recoverable value of an asset below its carrying amount, leading to an adjustment in the value recorded on financial statements.

Goodwill

An intangible asset that arises when a company acquires another company for a price higher than the fair value of its net tangible assets.

Impairment

A decrease in the recoverable value of an asset below its carrying amount, leading to a reduction in its recorded value on financial statements.