Dinner Foods stock has a beta of 1.45 and an expected return of 13.43 percent.Edwards' Meals stock has a beta of .95 and an expected return of 10.27 percent.Assume that both stocks are correctly priced.Given this,the risk-free rate is ________ percent and the market rate of return is ________ percent.
A) 4.02; 11.53
B) 4.09; 12.35
C) 4.10; 11.53
D) 4.27; 10.59
E) 4.41; 10.25

Question

Quizplus · Accepted Answer

[13.34 − r_f]/1.45 = [10.27 − r_f]/0.95; r_f = 4.266% ≈ 4.27% [13.3 − 4.27]/1.45 = [R_m − 4.27]/1.00; R_m = 10.586% ≈ 10.59%

Dinner Foods Stock Has a Beta of 1