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:

Allocate Attention

Refers to the process of focusing cognitive resources on specific stimuli, tasks, or goals while ignoring others.

Information-Processing Approach

A cognitive approach that likens the human mind to a computer, focusing on how information is taken in, stored, and retrieved.

Piaget's Theory

A comprehensive theory of cognitive development that describes how children construct a mental model of the world through different stages.

Cognitive Skills

Abilities related to the process of knowing, including aspects such as awareness, perception, reasoning, and judgment.