If a Stock Has a Beta Coefficient, β, Equal to 1.20

question 18

Multiple Choice

If a stock has a beta coefficient, β, equal to 1.20, the risk premium associated with the market is 9 percent, and the risk-free rate is 5 percent, application of the capital asset pricing model indicates the appropriate return should be ____.

• A)9.8%
• B)14%
• C)5%
• D)15.8%
• E)None of the above is correct.

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Definitions:

Psychological Sensation

The initial process of detecting and interpreting environmental stimuli through the senses.

Perception

The process of organizing, identifying, and interpreting sensory information to represent and understand the environment around us.

Selection Factor

A source of bias that may occur in research findings when participants are allowed to choose for themselves a certain treatment in a scientific study.

Research Findings

The outcomes, results, or conclusions gathered from investigations and studies conducted on specific topics.