The Two Factor Model on a Stock Provides a Risk

question 49

Multiple Choice

The two factor model on a stock provides a risk premium for exposure to market risk of 12%,a risk premium for exposure to silver commodity prices of 3.5% and a risk free rate of 4.0%.What is the expected return on the stock?

• A) 11.6%
• B) 13.0%
• C) 15.3%
• D) 19.5%

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Definitions:

Annual Coupon

The annual payment of interest to bondholders, usually shown as a percent of the bond’s nominal value.

Yield To Maturity

The total return anticipated on a bond if held until it matures, accounting for its current market price, interest payments, and eventual repayment of principal.

Required Rate Of Return

The minimum acceptable rate of return considering both its risk and the returns available on other investments.

Bond Yields

The amount of return an investor realizes on a bond, calculated as the percentage of the bond's annual interest payments relative to its market price.