The Risk-Free Rate of Return Is 3% and the Expected

question 14

Multiple Choice

The risk-free rate of return is 3% and the expected return on the market portfolio is 14%.Oklahoma Oilco has a beta of 2.0 and a standard deviation of returns of 26%.Oilco's marginal tax rate is 35%.Analysts expect Oilco's net income to grow by 12% per year for the next 5 years.Using the capital asset pricing model,what is Oklahoma Oilco's cost of retained earnings?

• A) 18.6%
• B) 21.2%
• C) 22.8%
• D) 25.0%

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