The Probability Distribution for R_M for the Coming Year Is

question 29

Multiple Choice

The probability distribution for r_M for the coming year is as follows: If r_RF = 6.05% and Stock X has a beta of 2.0, an expected constant growth rate of 7 percent, and D₀ = $2, what market price gives the investor a return consistent with the stock's risk?

• A) $25.00
• B) $37.50
• C) $21.72
• D) $42.38
• E) $56.94

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Definitions:

Short Run

In economics, a period during which at least one of a firm's inputs is fixed and cannot be changed.

Fixed Input

An input in the production process that cannot be changed in the short term, such as buildings or land.

Long-Run Adjustment

A process in which firms adjust their inputs and outputs to achieve the optimal level of production and efficiency over an extended period.

Farmer

An individual engaged in the activity of agriculture, aiming to produce crops and raise livestock for consumption or sale.