An Equity Security with Systematic Risk Equal to the Average

question 43

Multiple Choice

An equity security with systematic risk equal to the average amount of systematic risk of all equity securities in the market:

• A) has a market beta equal to one.
• B) should expect to earn the same rate of return as the average stock in the market portfolio.
• C) gives no insight into the risk premium of stock.
• D) Both a and b are correct.

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Definitions:

Pledged As Collateral

Assets that are offered as security for the repayment of a loan, where the lender has the right to take possession of the assets if the borrower defaults on the loan obligations.

Present Values

The monetary value now of a future lump sum or cash flow series, taking into account a particular rate of return.

Excel

A spreadsheet program developed by Microsoft used for data organization, analysis, and calculation.

Periodic Interest Payments

Regularly scheduled payments made to a lender or creditor for the use of borrowed money, typically part of the terms of a loan.