In 2018, Venus Fly Co

question 76

Multiple Choice

In 2018, Venus Fly Co. issued a $75 par value preferred stock that pays a 7 percent annual dividend. Due to changes in the overall economy and in the company's financial condition investors are now requiring a 5 percent return. What price would you be willing to pay for a share of the preferred if you receive your first dividend one year from now?

• A) $125
• B) $84
• C) $91
• D) $145
• E) $105

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Definitions:

Capital Asset Pricing Model

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks, used in finance to price risky securities.

William Sharpe

An economist who created the Sharpe Ratio, a measure to calculate risk-adjusted return.

SML (Security Market Line)

A line in the Capital Asset Pricing Model that shows the relationship between the expected return of a security and its risk.

Risk Averse

A tendency to prefer certainty over uncertain outcomes to minimize exposure to financial loss.