Use the Information for the Question(s) Below

question 62

Multiple Choice

Use the information for the question(s) below.
Luther Industries has no debt, a total equity capitalization of $20 billion, and a beta of 1.8. Included in Luther's assets are $4 billion in cash and risk-free securities.
-Considering the fact that Luther's cash is risk-free,Luther's unlevered beta is closest to:

• A) 1.90
• B) 2.25
• C) 1.50
• D) 1.45

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Definitions:

Purchasing Power Parity

An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power.

Equilibrium Exchange Rate

The exchange rate at which the supply of a currency equals its demand in the foreign exchange market, leading to a stable market condition without the need for intervention.

Internationally Traded Goods

Products and services that are sold and bought across national borders, subject to international trade regulations and agreements.

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to determine their relative value.