Use the Information for the Question(s) Below

question 76

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 Luther Corporation's beta is 0.9.If the market risk premium is 8% and the risk-free interest rate is 4%,then then expected return for Luther stock is:

• A) 7.6%
• B) 11.6%
• C) 11.2%
• D) 12.9%