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

question 47

Multiple Choice

The risk-free rate and the expected market rate of return are 0.04 and 0.12, respectively. According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.4 is equal to

• A) 6%
• B) 14.4%
• C) 12%
• D) 15.2%
• E) 18%

---

Definitions:

Standard Hours

The predetermined amount of time expected to be required to complete a task or produce a unit of product under normal conditions.

Actual Rate

Often refers to the real, current exchange rate in currency markets, or the real rate of interest or return on investment.

Quantity Variance

Measures the difference between the actual amount of materials or labor used in production and the amount that should have been used, according to standards.

Standard Price

The predetermined cost of acquiring a product or receiving a service under normal conditions.