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%

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Definitions:

Inventories

Stocks of goods and materials a business holds for the purpose of resale or production.

Gross Domestic Product

Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country's borders in a given period, serving as a broad measure of a nation's overall economic activity.

Marketable

Referring to assets or securities that are easily sold or converted into cash without significant loss in value.

Professionally Installed

Refers to equipment or systems setup and configured by experts or certified technicians, ensuring optimal performance and compliance with standards.