USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the Three

question 150

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas) .
The zero-beta return ( $\lambda$ 0) = 3 percent, and the risk premia are $\lambda$ 1 = 10 percent and $\lambda$ 2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. The expected returns for stock X, stock Y, and stock Z are

• A) 3 percent, 8 percent, 10 percent
• B) 7.1 percent, 10.5 percent, 8.8 percent
• C) 7.1 percent, 8.8 percent, 10.5 percent
• D) 10 percent, 5.5 percent, 14 percent
• E) 14 percent, 5.5 percent, 12 percent

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Definitions:

Controlling Influence

The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities, typically seen in parent-subsidiary relationships.

Held-To-Maturity Securities

Debt securities that a firm has the intent and ability to hold until they mature rather than trading them.

Trading Securities

Financial instruments bought and held primarily for selling in the near term to profit from price changes.

Unrealized Gain (Loss)

The increase (gain) or decrease (loss) in the value of investments that a company holds, which have not yet been sold for a profit or a loss.