Assume That D Is the Discount Factor, Rf Is the Risk

question 49

Multiple Choice

Assume that d is the discount factor, Rf is the risk free return, b is beta for a particular stock, and Rm is the market risk premium. According to the capital asset pricing model, the formula for finding the discount factor is

• A)d = Rf + b(Rm)
• B)d = Rf/b(Rm)
• C)d = Rf x Rm
• D)not enough information is given to find the discount factor.

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Definitions:

Sampling Distribution

The probability distribution of a statistic obtained through repeated sampling from a population.

Independent Samples

Refers to samples drawn from two populations where the selection of a sample from one population is not influenced by the selection from the other.

Population Means

The average value of a particular characteristic in the entire population.

Z-score

A statistical measure that describes a value's relationship to the mean of a group of values, measured in terms of standard deviations from the mean.