14. Music Stores\' stock has a risk premium of 9.6 percent while the inflation r

Question

14. Music Stores' stock has a risk premium of 9.6 percent while the inflation rate is 4.1 Fiddler's percent and the risk-free rate is 3.9 percent. What is the expected return on this stock? 12.3 percent 12.7 percent 13.5 percent 13.7 percent 16.5 percent A. B. D. E. 15. A stock is expected to return 13 percent in an economic boom, 10 percent in a normal economy, and 3 percent in a recessionary economy. Which one of the following will lower the overall expected rate of return on this stock? A. B. C. D. E. An increase in the rate of return in a recessionary economy A decrease in the probability of a recession occurring An increase in the rate of return for a normal economy An increase in the probability of an economic boom A decrease in the probability of an economic boom 16. Based on the capital asset pricing model, investors are compensated based on which of the following? I. Market risk premium II. Portfolio standard deviation IlI. Portfolio beta W. Risk-free rate A. B. C. D· E. Iand IlI only 11 and only I, lI, and IlI only l,III, and IV only 1,1, lll, and IV

Explanation / Answer

14 Expected return on the stock = 9.6 + 3.9 = 13.5

15. A decrease in the probability of an economic boom

16. CAPM return = risk free rate + beta* market risk premium

so D

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