The Risk-Free Rate and the Expected Market Rate of Return

question 26

Multiple Choice

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively.According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.2 is equal to

• A)0.06.
• B)0.144.
• C)0.12.
• D)0.132.

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Definitions:

Forecasting

The process of making predictions based on past and present data trends, commonly used in finance to estimate future market movements or economic conditions.

Stock Market Values

The overall value of shares traded within a stock market, representing the market's perception of the total worth of its listed companies.

Uncertainty

The degree to which the outcome of an event, choice, or investment is unknown.

Constant Growth DDM

The Dividend Discount Model assumes dividends grow at a constant rate indefinitely, used to estimate the value of a company's stock.