Stock XYZ Has a Beta of 1

question 53

Multiple Choice

Stock XYZ has a beta of 1.6 and a required rate of return of 15.75 percent.What is the risk-free rate if the market return is 12 percent?

• A) 3.25%
• B) 3.75%
• C) 4.50%
• D) 5.75%

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Definitions:

Nominal Rate

The rate of interest before adjustments for inflation, representing the face value of financial products.

Large-company Stocks

Shares that represent ownership in corporations with large market capitalizations.

Risk Premium

The extra return expected by investors for holding a risky asset compared to a risk-free asset, compensating for the additional risk.

Total Return

The complete return on an investment over a specified period, including both capital gains and income received.