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:

Sub-Optimal Outcomes

Results or situations that are less efficient or desirable than the best possible scenario.

Equilibrium

A condition where the supply and demand in the market are equal, leading to stable pricing.

Tit-For-Tat Strategy

A cooperative and retaliatory strategy in game theory where a player replicates an opponent's previous action.

Repeated Game

A strategic situation where the same game is played several times, allowing for strategy development based on previous outcomes.