A Firm Has a Beta of 1

question 29

Multiple Choice

A firm has a beta of 1.2. The market return equals 14 percent and the risk-free rate of return equals 6 percent. The estimated cost of common stock equity is ________.

• A) 6 percent
• B) 7.2 percent
• C) 14 percent
• D) 15.6 percent

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Definitions:

Formula

A concise way of expressing information symbolically, as in a mathematical or chemical formula, representing a relationship between variables.

One-Sample Tests

Statistical tests used to compare the mean of a sample to a known value or standard, in order to assess if the sample comes from a population with that specific mean.

Alternative Hypotheses

In statistical testing, a hypothesis that suggests a difference or effect contrary to the null hypothesis, essentially proposing that an observed effect is real.

Null

In statistics, this refers to the null hypothesis, which is a default hypothesis that there is no significant difference or effect.