Exhibit 7-1 Consumer Price Index

question 20

Multiple Choice

Exhibit 7-1 Consumer Price Index

As shown in Exhibit 7-1, the rate of inflation for Year 2 is:

• A) 5 percent.
• B) 10 percent.
• C) 20 percent.
• D) 25 percent.

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Definitions:

SML

Stands for Security Market Line; it represents the relationship between the expected return of an investment and its risk in the capital asset pricing model (CAPM).

Beta of the Portfolio

An assessment of a portfolio's volatility or inherent risk, relative to the overall market.

Required Return

The minimum annual percentage earned by an investment that will entice individuals or companies to put their money into it.

Risk-free Rate

The return on an investment with zero risk; typically represented by the yield on government bonds.