The Risk-Free Rate Is 4

question 72

Multiple Choice

The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information?

• A) 5.88 percent
• B) 5.95 percent
• C) 6.10 percent
• D) 6.23 percent
• E) 6.27 percent

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Definitions:

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, often used as an indicator of inflation.

Nominal Interest Rate

The interest rate before adjustments for inflation, indicating the basic rate at which interest is paid or earned.

Real Interest Rate

The interest rate that has been adjusted for inflation, showing the real cost of funds to the borrower and the real yield to the lender.

Social Security

A government program designed to provide financial assistance and support to people with inadequate or no income, primarily the elderly, disabled, and families with dependent children.