Security a Has an Expected Rate of Return of 0

question 40

Multiple Choice

Security A has an expected rate of return of 0.10 and a beta of 1.1.The market expected rate of return is 0.08 and the risk-free rate is 0.05.The alpha of the stock is

• A) 1.7%.
• B) -1.7%.
• C) 8.3%.
• D) 5.5%.
• E) none of these.

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Definitions:

Type I Error

The error of rejecting the null hypothesis when it is true, often referred to as a "false positive."

Confidence Interval

An interval of values, pulled from a sample's statistics, with a good chance of containing the elusive value of a population parameter.

Level of Significance

The probability of rejecting the null hypothesis in a statistical test when it is actually true, typically denoted by alpha (\(\alpha\)).

Test Statistic

A value calculated from sample data during a hypothesis test that is used to make a decision about the validity of a hypothesis.