American_Bankers_Association
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)- A6% (1)
- B76% (13)
- C12% (2)
- D6% (1)
Topics
#CAPM#beta#required return calculation#systematic risk
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