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

---

Definitions:

Confirmation Bias

The tendency to search for, interpret, favor, and recall information in a way that confirms one’s preexisting beliefs or hypotheses.

Dictator Game

A mutually anonymous behavioral economics game in which one person (“the dictator”) unilaterally determines how to split an amount of money with the second player.

Ultimatum Game

A behavioral economics game in which a mutually anonymous pair of players interact to determine how an amount of money is to be split. The first player suggests a division. The second player either accepts that proposal (in which case the split is made accordingly) or rejects it (in which case neither player gets anything).

Neoclassical Economics

A method in economics that concentrates on how supply and demand determine the distribution of goods, outputs, and incomes within various markets.