Security a Is Estimated to Be Linearly Related to Four

question 88

Multiple Choice

Security A is estimated to be linearly related to four risk factors: F₁, F₂, F₃, and F₄ such that its required rate of return can be expressed as ER_(A) = m_o + n₁F₁ + n₂F₂ + n₃F₃ + n₄F₄, where m_o is the risk-free rate.If the risk-free rate is 5.5 %, what is the required rate of return of Security A, where n₁, n₂, n₃, and n₄ are 0.3, 0.6, 0.9, and 0.12, respectively, and F₁, F₂, F₃, and F₄ are 6 %, 7 %, 10 %, and 8 %, respectively?

• A)19.22%
• B)21.46%
• C)22.90%
• D)27.11%

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Definitions:

Defective Pens

Pens that fail to meet the quality standards due to manufacturing defects, resulting in malfunction or unsatisfactory performance.

Independent

Not influenced by or connected to others; in statistics, refers to variables that do not affect each other.

Package

A collection of materials or data bundled together, often for transportation, distribution, or as part of software.

Likely

Having a high probability of occurring or being true; probable.