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.

---

Definitions:

Industrial Revolution

A period of major industrialization that took place during the late 1700s and early 1800s, transforming economies that had been based on agriculture and handicrafts into economies based on large-scale industry, mechanized manufacturing, and the factory system.

Steam Engine

A steam-powered engine that executes mechanical tasks, significantly contributing to the Industrial Revolution by operating factories, locomotives, and maritime vessels.

England

A country that is part of the United Kingdom, located on the island of Great Britain, known for its rich history, cultural heritage, and as the birthplace of the English language.

Barbara Ehrenreich

An American author and activist known for her critiques on the economic inequalities in Western societies, notably in her book "Nickel and Dimed."