A Risky Asset Has a Beta of 1

question 26

Multiple Choice

A risky asset has a beta of 1.40 and an expected return of 17.6 percent.What is the risk-free rate if the risk-to-reward ratio is 8.4 percent?

• A) 2.74 percent
• B) 4.03 percent
• C) 4.33 percent
• D) 5.32 percent
• E) 5.84 percent

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Definitions:

Financially Responsible

Refers to the ability or action of managing one's resources effectively, ensuring bills and debts are paid on time, and preparing for future financial obligations.

Guarantee

A formal promise or assurance that certain conditions will be met, including the quality or durability of a product, or the repayment of a loan.

Interest Rate

The percentage at which interest is charged or paid on borrowed or invested funds over a specific period of time.

Illness

A condition of being unwell, either physically or mentally.