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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Initials

The first letters of each word in a person's name, often used as a signature or to identify personal items.

THINK Technique

A decision-making tool that encourages individuals to consider if what they are about to say is True, Helpful, Inspiring, Necessary, and Kind before speaking.

True

In accordance with fact or reality, not false or erroneous.

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