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:

Just Noticeable Difference

The minimum difference in stimulation that a person can detect 50% of the time, also called the difference threshold.

Ounce

A unit of weight in the avoirdupois system, equivalent to 1/16th of a pound or approximately 28.35 grams.

Sensory Adaptation

The gradual decrease in sensory receptors' sensitivity to unvarying stimuli as time goes on.

Morphed Blend

The combination or fusion of two or more elements that have been altered or transformed to create a new entity.