A Capital Investment That Generates a 10 Percent Rate of Return

question 20

Multiple Choice

A capital investment that generates a 10 percent rate of return is worthwhile if:

• A)Corporate bonds of similar risk offer 8 percent rates of return.
• B)Corporate bonds of similar risk offer 10 percent rates of return.
• C)top-quality corporate bonds offer 10 percent rates of return.
• D)The expected rate of return on the stock market is 12 percent.

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Definitions:

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points or investment returns around the mean.

Beta

A quantification of the risk and fluctuations experienced by a security or portfolio when compared to the general market.

Treynor Measure

A performance metric for determining how well an investment compensates the investor for taking a particular level of risk, accounting for systematic risk.

Standard Deviation

A statistical measure that represents the dispersion or variance in a set of data points, used in finance to measure the volatility of investment returns.