A Risky Asset Has a Beta of 1

question 69

Multiple Choice

A risky asset has a beta of 1.30 and an expected return of 10.3%. What is the reward-to-risk ratio if the risk-free rate is 1.34%?

• A)3.98%
• B)5.23%
• C)6.89%
• D)7.23%
• E)8.23%

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Definitions:

Capital at Risk

The amount of capital that could be lost in an investment due to risk factors.

Company's Liabilities

Financial obligations a company owes to outside parties, including debts, loans, and other forms of financial liabilities.

Efficient Market

A market in which prices fully reflect all available information and assets are priced accurately.

Moral Hazard

The situation where one party takes risks because they know they will not bear the full consequences of their actions, often due to asymmetric information or contracts.