beta of 1.12. The risk-free rate of return is 3.5 percent and the market risk premium is 8
percent. What discount rate should Decker's use if it considers a project that involves
the manufacturing of furniture?
A. 12.46 percent
B. 12.92 percent
C. 13.50 percent
D. 14.08 percent
E. 14.54 percent
The dividend growth model can be used to compute the cost of equity for a firm in
which of the following situations?
I. firms that have a 100 percent retention ratio
II. firms that pay a constant dividend
III. firms that pay an increasing dividend
IV. firms that pay a decreasing dividend
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III only
E. II, III, and IV only
You have saved a total of $200,000 over the past several years. Jane, a trusted business
associate, recently approached you with an offer. She has offered you a partnership in a
new firm that she expects to be exceedingly profitable. Your initial investment in the
partnership would be $125,000. However, Jane cannot give you any odds on that
success occurring. You have decided to keep your $125,000 and forego this opportunity
simply because you don't know the probability of success. Which one of the following
behavior characteristics do you have?
A. aversion to ambiguity
B. recency bias
C. sentiment-based risk aversion
D. clustering illusion
E. money illusion