Under the Following Conditions, What Are the Expected Returns for Stocks

question 77

Multiple Choice

Under the following conditions, what are the expected returns for stocks A and C?

$\begin{array}{ll}\lambda^{0}=0.07 & \mathrm{~b}_{\mathrm{a}, 1}=0.95 \\\mathrm{k}_{1}=0.04 & \mathrm{~b}_{\mathrm{a}, 2}=1.10 \\\mathrm{k}_{2}=0.03 & \mathrm{~b}_{c, 1}=1.10 \\&\mathrm{~b}_{\mathrm{c}, 2}=2.35\end{array}$

• A) 14.1% and 17.65%
• B) 14.1% and 18.45%
• C) 17.65% and 18.45%
• D) 18.45% and 17.52%
• E) None of the above

Comprehend the factors influencing bond prices and their valuation.

Identify different securities and their backing assets.

Recognize the tax implications of various bond types.

Understand the concept of credit ratings and their impact on bond classifications.

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Definitions:

Net Present Value

A financial metric that calculates the present value of future cash flows minus the initial investment, used in capital budgeting to assess the profitability of investments.

Investment Project

A project involving the allocation of funds to assets or activities with the expectation of generating income or profit in the future.

Incremental Annual Net Cash Inflows

The additional cash flow a business expects to receive over a year as a result of a specific decision or investment, net of expenses.

Contribution Margin

The amount of revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.