Suppose Binder Corporation's Common Stock Has an Actual Return of 12.34

question 24

Multiple Choice

Suppose Binder Corporation's common stock has an actual return of 12.34 percent compared to its expected return of 12.6 percent.The risk-free rate was expected to be 4.3 percent,which it was.The beta of F_i is .9 and the beta of F_GNP is 1.1.If inflation unexpectedly increased by 1.4 percent,what was the unexpected change in GNP?

• A)2.02 percent
• B)1.38 percent
• C)−.82 percent
• D)−1.38 percent
• E)−2.02 percent

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar risk and maturity.

Coupon Bonds

Bonds that pay the holder a fixed interest rate (the coupon) over the bond's life, culminating in the repayment of the principal amount at maturity.

Interest Coupons

Certificates attached to bond certificates that represent the interest due on a payment date to the bondholder.

Bondholders

Individuals or entities that hold bonds issued by corporations or governments, entitled to receive interest payments and the return of principal.