A Stock Has an Average Historical Risk Premium of 6

question 26

Multiple Choice

A stock has an average historical risk premium of 6.4 percent. The expected risk-free rate for next year is 2.6 percent. What is the expected rate of return on this stock for next year?

• A) 6.50 percent
• B) 8.86 percent
• C) 9.00 percent
• D) 9.34 percent
• E) 11.70 percent

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Definitions:

Ergs

Basic innate drives or impulses that motivate behavior, often used in the context of psychoanalytic theory.

Attitudes

Enduring sets of beliefs or feelings about people, objects, or ideas that predispose individuals to respond in certain ways.

Learned Helplessness

A condition in which a person suffers from a sense of powerlessness, arising from a traumatic event or persistent failure to succeed, characterized by the belief that one's actions have no effect on outcomes.

Learned Optimism

The concept that one can develop a more positive outlook through cognitive behavioral techniques, as proposed by psychologist Martin Seligman.