If the Future Return on a Security Is Known with Absolute

question 20

Multiple Choice

If the future return on a security is known with absolute certainty, then the risk premium on that security should be equal to:

• A)zero.
• B)the risk-free rate.
• C)the market rate.
• D)the market rate minus the risk-free rate.
• E)the risk-free rate plus one-half the market rate.

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Definitions:

Expected Sales

Sales that a company realistically anticipates to achieve in a specific period, based on market research, historical data, and current market conditions.

Ending Inventory

The value or quantity of goods available for sale at the end of an accounting period, after accounting for sales and purchases.

Beginning Inventory

The value of a company's inventory at the start of an accounting period, before any purchases or production.

Cash Budget

A detailed plan showing how cash resources will be acquired and used over a specific time period.