Stock a Has an Expected Return of 15

question 78

Multiple Choice

Stock A has an expected return of 15.6 percent and a beta of 1.27.Stock B has an expected return of 11.4 percent and a beta of 0.89.Both stocks have the same reward-to-risk ratio.What is the risk-free rate?

• A)1.56 percent
• B)2.28 percent
• C)2.79 percent
• D)3.35 percent
• E)3.92 percent

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Definitions:

Discrimination

Unequal treatment or prejudice against individuals on the basis of their membership in a particular group, negatively affecting their opportunities and well-being.

Cognitive Dissonance Theory

A theory suggesting that people experience discomfort (dissonance) when holding conflicting cognitions and are motivated to reduce this discomfort by altering attitudes, beliefs, or behaviors.

Outgroups

Groups to which a person does not belong or identify, often viewed as different or outside the social norm.

Mortality Salience

The awareness of one's own mortality, which can provoke various psychological responses and influence behaviors and attitudes toward life.