Which One of the Following Stocks Is Correctly Priced If

question 68

Multiple Choice

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%? $$\begin{array} { c r c } \underline{\text { Stock }} & \underline{ \text { Beta }} & \underline{\text { Expected Return }} \\\text { A } & .85 & 9.2 \% \\\text { B } & 1.08 & 11.8 \% \\\text { C } & 1.69 & 15.3 \% \\\text { D } & .71 & 7.8 \% \\\text { E } & 1.45 & 12.3 \%\end{array}$$

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Definitions:

Tiered Corporate Group

A hierarchical structure where a parent company controls subsidiary companies, which in turn may control their own subsidiaries, creating multiple levels of entity relationships.

Control

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, often through ownership of a majority of voting rights.

Sequential Consolidation Method

A process of combining financial statements of a parent company and its subsidiaries one at a time in a specific sequence.

Disadvantages

Refers to the drawbacks or limitations that may hinder success or efficiency in a specific context.