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

---

Definitions:

Homeostasis

The self-regulating process by which biological systems maintain stability while adjusting to conditions that are optimal for survival.

Thermometer

An instrument for measuring and indicating temperature.

Thermostat

a device used to regulate the temperature of a system so that the system's temperature is maintained near a desired set-point.

Drive-Reduction Theory

Approach to motivation that assumes behavior arises from physiological needs that cause internal drives to push the organism to satisfy the need and reduce tension and arousal.