You Own $7,000 of Diner's Corp

question 7

Multiple Choice

You own $7,000 of Diner's Corp. stock that has a beta of 1.75. You also own $13,000 of Comm Corp. (beta = 1.15) and $20,000 of Airlines Corp. (beta = 0.7) . Assume that the market return will be 12 percent and the risk-free rate is 3.5 percent. What is the total risk premium of the portfolio?

• A) 8.76 percent
• B) 8.86 percent
• C) 10.20 percent
• D) 12.36 percent

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Definitions:

Framing Effect

The influence of context or presentation on people's decisions and preferences, often used in decision-making research.

Mutual Funds

Investment programs funded by shareholders that trade in diversified holdings and are managed by professionals.

Statistical Analyses

The process of collecting, organizing, analyzing, interpreting, and presenting data to discover underlying patterns and trends.

Availability Heuristic

A shortcut in thinking that employs the quick-to-mind examples an individual has when considering a specific topic, concept, technique, or decision.