Multiple choice 29. Consider an asset that has a beta of 1.20. If the risk-free

Question

Multiple choice

29. Consider an asset that has a beta of 1.20. If the risk-free rate is 2.0% and the market risk premium is 3%, expected return on the asset is:

A. 5.0%

B. 6.2%

C. 3.2%

D. 5.6%

30. Assume that you are a U.S. investor who is considering investments in the German (Stocks A) and British (Stocks B) stock markets. The world market risk premium is 4.5%. The currency risk

premium on the euro is 1%, and the currency risk premium on the pound is 1%. In the United States, the interest rate on one-year risk-free bonds is 4%. In addition, you are provided with the following information:

Stock               A             B

Country          Germany      United Kingdom

w               1.5              1

€                1             0.25

£              0.25             1.0

Expected return for stock B is: (The U.S. dollar is the base currency).

A. 12%

B. 9.25%

C. 9.75%

D. 7.25%

Explanation / Answer

Dear Student, As per Chegg guideline we answer 1 Question per post d 5.6% ke = Rf +Beta(Market risk prem) Beta                1.20 Market risk premium   3% Risk Free Rate 2% ke = 2% + 1.2(3%) ke = 2% + 3.6% ke = 5.6%

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