The Risk-Free Rate and the Expected Market Rate of Return

question 19

Multiple Choice

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM) , the expected rate of return on security X with a beta of 1.2 is equal to

• A) 0.06.
• B) 0.144.
• C) 0.12.
• D) 0.132.
• E) 0.18.

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Definitions:

Attentional Capture

The involuntary redirecting of attention towards a specific stimulus without intentional control.

Attentional Resources

Cognitive capacity or energy available at a given time for processing information and performing tasks.

Inattentional Blindness

A psychological lack of attention wherein an individual fails to perceive an unexpected stimulus in plain sight.

Working-Memory Capacity

Working-memory capacity is the amount of information that an individual can hold temporarily in a readily accessible state for cognitive tasks.