On the Internet You Find the Following Offers for Opening

question 203

Multiple Choice

On the Internet you find the following offers for opening an online account.Which of them is the best offer if you have $5,000 to save for two years?

• A)an interest rate of 5 percent,with the bank charging you a $50 processing fee at the time you open your account
• B)an interest rate of 4 percent,with the bank giving you a $65 bonus at the time you open your account
• C)an interest rate of 3.5 percent,with the bank giving you a $100 bonus to open your account
• D)an interest rate of 4.5 percent,with no processing fee and no bonus

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Definitions:

Beta

An evaluation of the unsteadiness, or systematic jeopardy, of a security or collective financial investments when compared to the market as a whole.

CAPM

The Capital Asset Pricing Model, a formula used to determine the theoretical expected return of an investment given its risk relative to the market.

Risk-free Asset

An investment with zero risk of financial loss, typically considered to be government bonds.

Systematic Risk

Systematic risk refers to the risk inherent to the entire market or market segment, which cannot be mitigated through diversification.