Assume the Risk-Free Rate of Return (RRF) Is 5 Percent $\beta$

question 34

Multiple Choice

Assume the risk-free rate of return (rRF) is 5 percent, the market risk premium (RPM) is 8 percent, and an investment exists that has a beta (( $\beta$ ) .) equal to 1.5.According to the Capital Asset Pricing Model (CAPM) , which of the following statements is correct?

• A) The risk premium associated with the investment would be 12 percent.
• B) The appropriate rate of return for the investment is 9.5 percent.
• C) All investments that have betas less than 1.0 must earn a total rate of return less than 8 percent.
• D) There is not enough information to answer this question.
• E) None of the above is a correct statement.

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Definitions:

Account Category

A classification within the financial statements that helps in organizing accounts, such as assets, liabilities, equity, revenues, and expenses.

Controlling Account

An account in the general ledger that summarizes the total amounts recorded in all subsidiary ledger accounts.

Subsidiary Ledger

A ledger containing the details of transactions for a specific account, which then summarizes into a single amount in the general ledger.

Alphabetical Order

A system of arranging items according to the sequence of the letters in the alphabet.