Assume That the Market Is in Equilibrium and That Stock

question 6

Multiple Choice

Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF) , the risk-free rate, and the required return on the United Fund are shown below. Based on this information, what is the required return on the market, rM?
$\begin{array} { l r } \underline { \text { Year } } & \underline {\text { Market }} &\underline { U F } \\ 2011& - 9 \% &- 14 \%\\2012& 11 \% &16 \%\\ 2013 & 15 \%&22 \% \\ 2014 & 5 \% &7 \%\\ 2015 & - 1 \% &- 2 \%\end{array}$

$\mathrm { rgF: } : 7 \mathrm { cde } \%$
rUrited $15.00 \%$

• A) 10.57%
• B) 11.13%
• C) 11.72%
• D) 12.33%
• E) 12.95%

---

Definitions:

Pro-French Foreign Policy

A foreign policy stance favoring close relations and alliances with France, often in terms of diplomacy, trade, and military cooperation.

Monetary Policy

The process by which a government, central bank, or monetary authority manages the supply of money and interest rates to achieve economic objectives.

Internal Taxes

Internal taxes are taxes imposed by a government on goods, activities, or income within its own borders, as opposed to tariffs on imports.

Judicial Review

The power of courts to assess the constitutionality of laws and government actions, with the authority to uphold or nullify them based on their adherence to the constitution.