The Variance of Returns for a Risky Asset Is 25

question 81

Multiple Choice

The variance of returns for a risky asset is 25%.The variance of the error term,Var(e) ,is 8%.What portion of the total risk of the asset,as measured by variance,is systematic?

• A) 32%
• B) 8%
• C) 68%
• D) 25%
• E) 75%

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Definitions:

Predetermined Overhead Rate

An estimated rate used to apply manufacturing overhead to products or job orders, calculated before the period begins based on expected costs and activity levels.

Machine-Hours

A measurement of the amount of time machines are operated during the production process.

Direct Labor-Hours

The total hours worked directly on the production of goods, used as a basis for allocating labor costs to products.

Departmental Predetermined Rates

Specific overhead rates calculated for each department within a company, used to allocate indirect costs more accurately.