You Own Three Securities

question 12

Multiple Choice

You own three securities.Security A has an expected return of 11 percent as compared to 14 percent for Security B and 9 percent for Security C.The expected inflation rate is 4 percent and the nominal risk-free rate is 5 percent.Which one of the following statements is correct?

• A) There is no risk premium on Security C.
• B) The risk premium on Security A exceeds that of Security B.
• C) Security B has a risk premium that is 50 percent greater than Security A's risk premium.
• D) The risk premium on Security C is 5 percent.
• E) All three securities have the same expected risk premium.

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Definitions:

Annual Rates

The amount or percentage over a year used for calculating changes in financial or other measurements.

Annual Rates

Year-over-year figures or metrics, often used in contexts such as finance or growth measurement.

Monthly Rates

Periodical figures or charges allocated on a per-month basis, common in services and financial agreements.

Pounds

A unit of weight in the Imperial system, equivalent to 0.453592 kilograms.