A Stock Has a Beta of 1

question 91

Multiple Choice

A stock has a beta of 1.8.The expected market return is 10.5%.The equilibrium return for the stock is 17.30%.What is the risk-free rate according to the CAPM?

• A) 1%
• B) 2%
• C) 3%
• D) 4%
• E) 5%

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Definitions:

Shareholders

Individuals or entities that own shares in a corporation, granting them rights to dividends and a say in company affairs proportional to their shareholding.

ROCE

Return on Capital Employed, a financial metric that measures a company's profitability and the efficiency with which its capital is employed.

After-Tax Cost

The expense of an action or investment after accounting for the effects of taxes.

Leverage

The use of borrowed funds to increase the potential return of an investment or project.