Suppose the Returns on Security B Are Linearly Related to Four

question 29

Multiple Choice

Suppose the returns on Security B are linearly related to four risk factors: F1, F2, F3, and F4.The required rate of return on Security B can be determined as follows: .The risk-free rate is 5%.What is the risk premium for F4, if the required return of Security B is 20%, b1, b2, b3, and b4 are 0.5, 0.7, 0.6, and 0.9, respectively, and F1, F2, and F3 are 4.25%, 5.75%, and 6.5%, respectively?

• A)4.95%
• B)5.50%
• C)7.42%
• D)11.06%

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Definitions:

Zygomaticus Major

A facial muscle that draws the mouth upward and outward, playing a key role in expressing smiling.

Buccinator

A muscle of the cheek that acts to compress the cheek against the teeth and is used in blowing and chewing.

Carpal Tunnel Pressure

The pressure within the carpal tunnel, an anatomical compartment of the hand, potentially leading to carpal tunnel syndrome when increased.

Palmar Aponeurosis

A thick fibrous tissue layer in the palm of the hand that anchors the skin and helps in gripping.