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:

Empirical Data Analyses

involves the systematic examination of collected data through observation or experiment to validate hypotheses or theories.

Basic Structure

The fundamental framework or underlying system that forms the basis of something.

Raymond Cattell

was a psychologist known for his pioneering work in personality theory, including the development of trait theory.

Source Traits

Fundamental dimensions of personality identified through factor analysis that underlie and give rise to surface traits.