Use the Following Information to Answer the Question(s)below

question 73

Multiple Choice

Use the following information to answer the question(s) below.
Consider the following information regarding corporate bonds:
-The firm's unlevered (asset) beta is:

• A)the weighted average of the equity beta and the debt beta.
• B)the weighted average of the levered beta and the equity beta.
• C)the debt beta minus the equity beta.
• D)the unlevered beta minus the cost of capital.

Distinguish between systematic and nonsystematic risk within the context of APT.

Apply the concept of arbitrage to identify risk-free profit opportunities.

Recognize the distinction between APT and the Capital Asset Pricing Model (CAPM).

Understand the role of the risk-free rate in determining the expected returns according to APT.

---

Definitions:

Income-Tax Filers

Individuals or entities that submit a report of their income to a governmental body to assess tax liabilities.

Efficiency Losses

The reduction in economic welfare resulting from distortions in resource allocation or market behavior.

Externalities

Costs or benefits that result from an activity or transaction and affect others who did not choose to incur that cost or benefit.

Demand Elasticities

Measures the responsiveness of demand for a good or service to changes in its price or other factors.