12. Assume that interest rates on 20-year Treasury and 20-year corporate bonds are as follows:

T-bond = 7.72% AAA = 8.72% A = 9.64% BB = 10.18%

The differences in these rates were probably caused primarily by:

a. Tax effects.

b. Inflation differences.

c. Maturity risk differences.

d. Default risk differences.

e. Real risk-free rate differences.

Dothan Inc.s stock has a 25% chance of producing a 30% return, a 50% chance of producing a 12% return, and a 25% chance of producing a 18% return. What is the firms expected rate of return?

7.72%

8.12%

8.55%

9.00%

9.50%