You Own Three Securities

question 61

Multiple Choice

You own three securities. Security A has an expected return of 11% as compared to 14% for Security B and 9% for Security C. The expected inflation rate is 4% and the nominal risk-free rate is 5%. Which one of the following statements is correct?

• A)There is no risk premium on Security C.
• B)The risk premium on Security A exceeds that of Security B.
• C)Security B has a risk premium that is 50% greater than Security A's risk premium.
• D)The risk premium on Security C is 5%.
• E)All three securities have the same expected risk premium.

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Definitions:

Zone of Proximal Development

The difference between what a learner can do without help and what they can achieve with guidance and encouragement from a skilled partner.

Private Speech

Self-directed speech that individuals, especially children, use to guide their own actions and thoughts, playing a key role in cognitive development according to Vygotsky.

Imaginary Audience

A psychological concept where an individual believes that his or her behavior is constantly being watched and judged by others, often seen in adolescence.

Adolescent Egocentrism

A characteristic of adolescence involving difficulty distinguishing between one's own perspective and someone else's perspective.