All Else Held Constant, Which of the Following Will Increase

question 84

Multiple Choice

All else held constant, which of the following will increase the expected return on a security based on CAPM? Assume the market return exceeds the risk-free rate and both values are positive. Also assume the beta exceeds 1.0.
I. decrease in the security beta
II. increase in the market risk premium
III. decrease in the risk-free rate
IV. increase in the market rate of return

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

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Definitions:

Public Sector Decision Making

The process by which government bodies or agencies decide on allotment of resources, policy implementations, and other administrative matters for the public good.

Personal Benefits

The advantages or gains that an individual receives from making certain choices or engaging in specific activities.

Rational-Ignorance Effect

A phenomenon where individuals decide not to become informed about a matter because the perceived cost of acquiring the information is greater than the expected benefit.

Incentive

A motivation or reward offered to encourage specific actions or behaviors, often used in economics to influence decision-making and improve efficiency.