A Risky Asset Has a Beta of 1

question 4

Multiple Choice

A risky asset has a beta of 1.40 and an expected return of 17.6%. What is the risk-free rate if the risk-to-reward ratio is 8.4%?

• A)2.74%
• B)4.03%
• C)4.33%
• D)5.32%
• E)5.84%

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Definitions:

Toxic Assets

Financial assets whose value has fallen significantly and for which there is no longer a functioning market, making them difficult to sell without incurring a loss.

Initial Public Offering

The process by which a private company offers its shares to the public in a new stock issuance, often to raise capital.

"Wedge" Issues

Political or social issues introduced by a party or group to divide opponents or rally support by focusing on controversial matters.

September 11

A significant date in 2001 when terrorist attacks were carried out by al-Qaeda against the United States, targeting the World Trade Center and the Pentagon.