How Much Should a Security with a High Variance of Return

question 24

Multiple Choice

How much should a security with a high variance of return and fi of 1 be expected to return?

• A)The market rate of return
• B)The risk- free rate of return
• C)Nothing
• D)None of the above

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Definitions:

Arousal Theory

A theory suggesting that people are motivated to maintain an optimal level of arousal, which varies by individual.

Homeostasis

The process by which a living organism maintains stable internal conditions despite changes in its external environment.

Boredom

A state of feeling disinterested and restless due to a lack of stimulation or engagement.

Yerkes-Dodson Law

A psychological principle stating that performance increases with arousal up to an optimal point, after which it decreases.