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:

Common Stock

Represents ownership shares in a corporation, giving holders a claim on part of the company's profits in the form of dividends and voting rights at shareholders' meetings.

Bondholders

Individuals or entities that hold debt securities issued by corporations or governments, expecting to receive fixed interest payments and the principal back at maturity.

Market Interest Rate

The prevailing rate at which borrowers and lenders agree to transact, not set by any one institution but by market demand and supply.

Contractual Interest Rate

The agreed-upon rate of interest that is to be paid on a loan, as defined in the loan agreement.