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Author Question: The risk-free rate is 7 percent, the expected return on the market is 10 percent, and the expected ... (Read 108 times)

justinmsk

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on: Jul 10, 2018
The risk-free rate is 7 percent, the expected return on the market is 10 percent, and the expected return on Security J is 13 percent. What is the beta of Security J?
 
  A) 0.5
  B) 1.0
  C) 1.5
  D) 2.0
  E) 2.5

Question 2

Shortcomings of the dividend pricing models suggest that we need a pricing model that is more inclusive than the dividend models and provides expected returns for companies based on aspects besides their historical dividend patterns.
 
  Which of the below is NOT one of these aspects?
  A) The company's risk
  B) The premium for taking on risk
  C) The reward for waiting
  D) Stable dividends


komodo7

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Reply #1 on: Jul 10, 2018
Answer to Question 1

D

Answer to Question 2

Answer: D
Explanation: D) What we need is a pricing model that is more inclusive than the dividend model in that it can estimate expected returns for stocks without the need for a stable dividend history. The capital asset pricing model (CAPM) is more inclusive and provides expected returns for companies based on (1) their risk, (2) the premium for taking on risk, and (3) the reward for waiting, and not on their historical dividend patterns.


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