Security a Has an Expected Rate of Return of 0

question 13

Multiple Choice

Security A has an expected rate of return of 0.10 and a beta of 1.3. The market expected rate of return is 0.10, and the risk-free rate is 0.04. The alpha of the stock is

• A) 1.7%.
• B) −1.8%.
• C) 8.3%.
• D) 5.5%.

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Definitions:

Ruling Class

The social class that controls the means of production in a society and, therefore, has power over governance and decision-making.

Heaven

In many religions, a paradisiacal place or state of existence after death where the faithful are rewarded.

Rationalization

The process of replacing traditional and emotional thought with reason and practicality, often linked to societal progression and modernity.

Egg McMuffin

is a fast-food breakfast sandwich, consisting of an English muffin, egg, processed cheese, and Canadian bacon, created by McDonald's.