If a Portfolio Had a Return of 18%, the Risk-Free

question 27

Multiple Choice

If a portfolio had a return of 18%, the risk-free asset return was 5%, and the standard deviation of the portfolio's excess returns was 34%, the risk premium would be

• A) 13%.
• B) 18%.
• C) 49%.
• D) 12%.
• E) 29%.

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Definitions:

Preferred Stock

A type of stock that grants holders preference in dividend payments and assets in the event of a liquidation, often without voting rights.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Market Value

The prevailing rate at which a service or asset is available for purchase or sale in a market.

Capital Asset Pricing Model

A formula used to determine the expected return on an investment, considering risk and the time value of money.