A Security's Return in Equal to Its Systematic Return Plus

question 28

Multiple Choice

A security's return in equal to its systematic return plus its unsystematic return where ________.

• A) the security return, R, may be expressed as R = βRm + ε'.
• B) the systematic return is proportional to the market return and it can be expressed as the symbol beta (or β) times the market return, Rm.
• C) unsystematic return, which is independent of market returns, is usually represented by the symbol epsilon (ε').
• D) All of these

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows, given a specified rate of return.

Perpetuity

A type of financial instrument that pays a fixed amount of cash flows indefinitely, without a maturity date.

Compounded Monthly

A method of calculating interest in which the interest earned each month is added to the principal, and future interest is calculated on the new total.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money, or the rate earned on an investment.