BBG Stock Has a Beta of

question 19

Multiple Choice

BBG stock has a beta of .86 and an expected return of 9.51 percent.The risk-free rate of return is 3.26 percent and the market rate of return is 11.14 percent.Which one of the following statements is true given this information?

• A)BBG stock is correctly priced.
• B)The return on BBG stock will graph below the security market line.
• C)The expected return on BBG stock based on the capital asset pricing model is 9.88 percent.
• D)BBG stock has more systematic risk than the overall market.
• E)BBG stock is underpriced.

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Definitions:

Activity Cost Pools

Groupings of individual costs related to a particular activity, used in activity-based costing to allocate costs more accurately.

Direct Labor-hours

The overall hours that workers, who are a part of the manufacturing operations, put in.

Activity-based Costing

A costing method that allocates overhead costs to products based on the activities required to produce those products.

Record-keeping Cost

Expenses associated with maintaining accurate and comprehensive records of a company’s financial transactions and operations.