A Risk-Free Investment of $50,000 Offers an Annual Return of 6

question 45

Multiple Choice

A risk-free investment of $50,000 offers an annual return of 6%. A risky investment of $50,000 has a 40% probability of default, in which case it will pay only $25,000.
-Refer to the information above. What is the expected rate of return on the risky investment?

• A)+8.4%
• B)-22.0%
• C)-16.4%
• D)+7.8%

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Definitions:

Endothermic Reaction

A chemical reaction that absorbs heat from its surroundings.

Exothermic Reaction

A chemical reaction that releases heat energy to its surroundings.

Hammond Postulate

A principle stating that the transition state of a chemical reaction resembles the structure of the closest stable species.

Free Radical Bromination

A chemical reaction process involving the substitution of hydrogen atoms in organic molecules with bromine atoms, initiated by free radicals.