The Two Factor Model on a Share Provides a Risk

question 2

Multiple Choice

The two factor model on a share provides a risk premium for exposure to market risk of 9%, a risk premium for exposure to interest rate of (-1.3%) , and a risk-free rate of 3.5%. What is the expected return on the share?

• A)8.7%
• B)11.2%
• C)13.8%
• D)15.2%

---

Definitions:

Acquisition Method

An accounting process used during the consolidation of financial statements that involves combining the buying and selling entities' assets and liabilities.

Consolidated Financial Statements

Financial documents that combine the accounting records of a parent company and its subsidiaries, presenting the financial position as if they were a single entity.

Equity Method

An accounting technique used to assess the profits earned by a company through its investment in another company, recognizing income or loss in proportion to its ownership share.

Consolidated Current Liabilities

The combined total of all short-term financial obligations and debts of a parent company and its subsidiaries, due within one year.