1. Comparing two otherwise equal firms, the beta of the common stock of an unlevered firm is _____________ the beta of a levered firm.
A. less than
B. equal to
C. slightly greater than
D. significantly greater than
2. BPJ stock is expected to earn 6.3 percent in a normal economy, 14.8 percent in a booming economy, and lose 4.7 percent in a recession. The probability of a recession is 20 percent while the probability of a normal economy is 55 percent and the probability of a booming economy is 25 percent. What is the expected rate of return on this stock?
A. 6.23%
B. 6.72%
C. 6.81%
D. 7.60%
E. 8.11%