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:

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A body of legal rules and principles based on court judgments and customs, rather than formal statutes or legislations.

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The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States, intended to standardize and simplify the law across state lines.

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