The company that prints unemployment insurance checks is named Countercyclical Printing,Inc.Countercyclical Printing's beta is -0.75,the risk free rate is 8%,and the risk premium on the market is 7%.What is the equilibrium expected rate of return on Countercyclical Printing's stock?
A) -8.75%
B) -3.25%
C) 2.75%
D) 4.50%
E) 5.25%

Question

Quizplus · Accepted Answer

E(k_i) = k_F + β_i[E(k_M) - k_F] Remember that the market risk premium is equal to: E(k_M) - k_F = 7% E(k_i) = 0.08 - 0.75(0.07) E(k_i) = 0.08 - 0.0525 = 0.0275 or 2.75%

The Company That Prints Unemployment Insurance Checks Is Named Countercyclical