The Risk Premium for an Individual Security Is Computed By

question 69

Multiple Choice

The risk premium for an individual security is computed by:

• A) multiplying the security's beta by the market risk premium.
• B) multiplying the security's beta by the risk-free rate of return.
• C) adding the risk-free rate to the security's expected return.
• D) dividing the market risk premium by the quantity (1 - beta).
• E) dividing the market risk premium by the beta of the security.

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Definitions:

Quartile

A quartile is a type of statistical measure that divides a data set into four equal parts, revealing the spread and tendencies of the data.

Chebyshev's Theorem

A statistical rule stating for any real number k greater than one, at least (1-1/k^2) of the distribution's values lie within k standard deviations from the mean.

Standard Deviations

A metric indicating the degree of spread or variability in a collection of numbers, highlighting the distance of individual values from the central mean.

Chebyshev's Theorem

A statistical theorem which states that for any real number greater than one, a certain proportion of values in any data set will be close to the mean, based on the number of standard deviations specified.