Use the Information for the Question(s)below

question 66

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 Bernard is closest to:

• A)+5%.
• B)-2%.
• C)-3%.
• D)+2%.

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Definitions:

Sporophyte Generation

A phase in the life cycle of plants and algae that is diploid, producing spores through meiosis to give rise to the gametophyte generation.

Haploid

Describes a cell or organism that contains a single set of chromosomes, typical of gametes in sexually reproducing organisms.

Gametophyte

The sexual phase in the life cycle of plants and algae that produces gametes, or sex cells.

Liverworts

Non-vascular plants belonging to the division Marchantiophyta, characterized by flat, leaf-like structures on their surface and found in moist, shaded environments.