Use the Information for the Question(s)below

question 56

Multiple Choice

Use the information for the question(s) below.
Consider two firms,Chihuahua Corporation and Bernard Industries that are each expected to pay the same $1.5 million dividend every year in perpetuity.Chihuahua Corporation is riskier and has an equity cost of capital of 15%.Bernard Industries is not as shaky as Chihuahua,so Bernard has an equity cost of capital of only 10%.Assume that the market portfolio is not efficient.Both stocks have the same beta and an expected return of 12%.
-The alpha for Chihuahua is closest to:

• A)+2%.
• B)-5%.
• C)-3%.
• D)+3%.

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Definitions:

Premium-Paying Population

The segment of the population that is currently paying premiums, often in the context of insurance policies.

Educational Level

A measure of the highest degree of education that an individual has completed.

Threshold

A minimum or starting point required for a new action or reaction to occur, often used in contexts like decision making, sensory perception, or market entry.

Educational Level

Educational level refers to the highest degree or level of schooling completed by an individual.