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CTFA · Question #88

Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent…

The correct answer is B. 9.6 percent; 13.2 percent. See the full explanation below for the reasoning.

Investment Management

Question

Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent. According to the capital-asset pricing model (CAPM) and making use of the information above, the required return on Plaid Pants' common stock should be , and the required return on Acme's common stock should be .

Options

  • A3.6 percent; 7.2 percent
  • B9.6 percent; 13.2 percent
  • C9.0 percent; 18.0 percent
  • D14.0 percent; 23.0 percent

How the community answered

(17 responses)
  • A
    6% (1)
  • B
    76% (13)
  • C
    12% (2)
  • D
    6% (1)

Topics

#CAPM#beta#required return calculation#systematic risk

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