If a Firm Has a Market Beta of 0

question 38

Multiple Choice

If a firm has a market beta of 0.9,is subject to an income tax rate of 35 percent,has a risk-free rate of 6 percent,a market risk premium of 7 percent,and has a market value of debt to market value of equity ratio of 60 percent,what does the market expect the firm to generate in terms of equity returns using CAPM?

• A) 6%
• B) 7%
• C) 12.3%
• D) 13%

---

Definitions:

Locus of Control

A psychological concept that refers to how strongly people believe they have control over the situations and experiences that affect their lives.

Locus of Control

A mental principle suggesting the level of conviction individuals possess regarding their ability to influence the circumstances and events impacting their existence.

Extraverted

Characterized by an outward-focused orientation, enjoying social interactions, and drawing energy from being around other people.

Single-Parent Families

Households led by one parent, who is responsible for raising children, often facing distinctive challenges.