A Company Has a Beta of 3

question 18

Multiple Choice

A company has a beta of 3.25. If the market return is expected to be 14 percent and the risk-free rate is 5.5 percent, what is the company's required return?

• A) 22.750 percent
• B) 33.125 percent
• C) 45.500 percent
• D) 51.000 percent

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Definitions:

Utility Function

A mathematical representation in economics of a consumer's preference ordering over a set of goods or outcomes.

Risk-Free Asset

An asset with a certain rate of return; often taken to be short-term T-bills.

Indifference Curve

A graphical representation in microeconomics showing different combinations of two goods that provide an individual with the same level of satisfaction or utility.

Expected Rate of Return

The anticipated return on an investment, taking into account both the risk of the investment and market conditions.