Exhibit 7-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 94

Multiple Choice

Exhibit 7-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You expect the risk-free rate (RFR) to be 3% and the market return to be 8%. You also have the following information about three stocks. $$\begin{array} { c c c c c } \text { STOCK } & \text { BETA } & \begin{array} { c } \text { CURRENT } \\\text { PRICE }\end{array} & \begin{array} { c } \text { EXPECTED } \\\text { PRICE }\end{array} & \begin{array} { c } \text { EXIPECTED } \\\text { DIVIDEND }\end{array} \\\hline \mathbf { X } & 1.25 & \$ 20 & \$ 23 & \$ 1.25 \\\mathbf { Y } & 1.50 & \$ 27 & \$ 29 & \$ 3.25 \\\mathbf { Z } & 0.90 & \$ 35 & \$ 38 & \$ 1.00\end{array}$$
-Refer to Exhibit 7-2. What are the estimated rates of return for the three stocks (in the order X, Y, Z) ?

• A) 21.25%, 8.33%, 11.43%
• B) 6.20%, 2.20%, 8.20%
• C) 16.50%, 5.50%, 22.00%
• D) 9.25%, 10.5%, 7.5%
• E) 15.00%, 3.50%, 7.30%

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Definitions:

Rapid Mental Processing

The ability to quickly assimilate, analyze, and act upon information mentally.

Errors

Mistakes or deviations from accuracy and correctness in action, calculation, opinion, or judgment.

Personal Attribution

The process by which individuals attribute causes to actions or events based on personal characteristics rather than situational factors.

Stable/Permanent

Characteristics or conditions that are constant, unchanging over time, and expected to stay the same indefinitely.