Gardner Electric Has a Beta of 0

question 79

Multiple Choice

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year.The T-bill rate is 4.00%, and the T-bond rate is 5.25%.The annual return on the stock market during the past 4 years was 10.25%.Investors expect the average annual future return on the market to be 12.50%.Using the SML, what is the firm's required rate of return?

• A) 11.34%
• B) 11.63%
• C) 11.92%
• D) 12.22%
• E) 12.52%

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Definitions:

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, with the compounding occurring on a monthly basis.

Effective Annual Interest Rate

The actual interest rate on an investment or loan when compounding occurs more frequently than annually, reflecting the true financial cost or yield over a year.

IRA Account

Individual Retirement Account; a tax-advantaged investing tool that individuals use to earmark funds for retirement savings.

End-of-year Payments

Financial distributions made to investors or employees at the end of a fiscal year, often in the form of bonuses or dividends.