At a Minimum,which of the Following Would You Need to Know

question 47

Multiple Choice

At a minimum,which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset?
I.asset's standard deviation
II.asset's beta
III.risk-free rate of return
IV.market risk premium

• A)I and III only
• B)II and IV only
• C)III and IV only
• D)I, III, and IV only
• E)I, II, III, and IV

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Definitions:

Factoring

A financial transaction where a business sells its accounts receivable to a third party at a discount in exchange for immediate cash.

Recourse

In secured lending, if the asset collateralizing a loan proves not to have the value anticipated, recourse implies the borrower is still responsible for the debt. The lender is said to have recourse to the borrower.

Seasonal Working Capital

Additional working capital needed to support fluctuations in business activity due to seasonal changes in demand.

Short-Term Loans

Loans that are scheduled to be repaid in less than a year, often used for working capital or emergency financing needs.