Assume the Risk-Free Rate of Return (RRF) Is 5 Percent

question 12

Multiple Choice

Assume the risk-free rate of return (rRF) is 5 percent, the market risk premium (RPM ) is 8 percent, and an investment exists that has a beta (β) equal to 1.5.According to the Capital Asset Pricing Model (CAPM) , which of the following statements is correct?

• A)The risk premium associated with the investment would be 12 percent.
• B)The appropriate rate of return for the investment is 9.5 percent.
• C)All investments that have betas less than 1.0 must earn a total rate of return less than 8 percent.
• D)There is not enough information to answer this question.
• E)None of the above is a correct statement.

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Definitions:

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