Use the Information for the Question(s) Below

question 18

Multiple Choice

Use the information for the question(s) below.
Suppose the market portfolio's excess return tends to increase by 30% when the economy is strong and decline by 20% when the economy is weak. A type S firm has excess returns increase by 45% when the economy is strong and decrease by 30% when the economy is weak. A type I firm will also have excess returns of either 45% or -30%, but the type I firm's excess returns will depend only upon firm-specific events and will be completely independent of the state of the economy.
-Suppose that Gold Digger's beta is -0.8.If the market risk premium is 8% and the risk-free interest rate is 4%,then then expected return for Gold Digger's stock is:

• A) -2.4%
• B) 4.8%
• C) 2.4%
• D) 10.4%

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Definitions:

Ad Hominem Fallacy

Rather than offering a counterargument, we target the character of the individual who presented the argument.

Earth is Flat

A debunked belief that the Earth is flat rather than an oblate spheroid.

Smells Funny

An informal expression indicating that something seems suspicious or not quite right.

Fallacy of Ambiguity

Debates featuring unclear expressions or careless linguistic constructions.