The Expected Return on the Market Portfolio Is Currently 11

question 27

Multiple Choice

The expected return on the market portfolio is currently 11%. Battmobile Corporation stockholders require a rate of return of 23.0%, and the stock has a beta of 2.5. According to CAPM, determine the risk-free rate.

• A) 17.5%
• B) 2.75%
• C) 3.0%
• D) 9.2%

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Definitions:

P/E Ratios

Price-to-Earnings Ratio, a valuation metric that compares the price of a stock to the company’s earnings per share, indicating how much investors are willing to pay per dollar of earnings.

Company Growth

Refers to the increase in size, revenue, or market share of a company over time.

Ceteris Paribus

A term from Latin that signifies "with all other factors remaining the same," employed in the field of economics to examine the impact of a single variable by keeping the rest unchanged.

Plowback Ratio

The proportion of earnings retained by a company after dividends have been paid out to shareholders.