Which One of the Following Is the Computation of the Risk

question 21

Multiple Choice

Which one of the following is the computation of the risk premium for an individual security? E(R) is the expected return on the security, R_f is the risk-free rate, β is the security's beta, and E(R_M) is the expected rate of return on the market.

• A)E(R_M) -R_f
• B)E(R) - E(R_M)
• C)E(R) - [E(R_M) + R_f]
• D)β[E(R_M) - R_f]
• E)β [E(R) - R_f]

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Definitions:

Physical Characteristics

The tangible attributes or features of an object, person, or location that can be observed with the senses.

Labor Supply

The total hours that workers or employees are willing to work at a given wage rate, or the availability of workers available to work in an economy.

Flexible Manufacturing

A system that allows for easy adaptation to changes in product design and demand by using versatile equipment and computer systems.