Consider the Single-Index Model

question 4

Multiple Choice

Consider the single-index model. The alpha of a stock is 0%. The return on the market index is 10%. The risk-free rate of return is 5%. The stock earns a return that exceeds the risk-free rate by 5%, and there are no firm-specific events affecting the stock performance. The β of the stock is

• A) 0.67.
• B) 0.75.
• C) 1.0.
• D) 1.33.
• E) 1.50.

---

Definitions:

Explicit Learning

The process of acquiring knowledge or skills through conscious effort and awareness, often in a formal educational setting.

Prototype

An especially representative example of a concept.

Basic Concept

Fundamental ideas or principles that serve as the foundation for a subject or theory.

Mental Set

A psychological tendency to approach situations in a certain way due to past experiences and perceptions, which can sometimes hinder problem-solving.