Use the Table for the Question(s)below

question 22

Multiple Choice

Use the table for the question(s) below.
-Suppose a risky security pays an average cash flow of $100 in one year.The risk-free rate is 5%,and the expected return on the market index is 13%.If the returns on this security are high when the economy is strong and low when the economy is weak,but the returns vary by only half as much as the market index,what risk premium is appropriate for this security?

• A)4%
• B)6.5%
• C)9%
• D)11%

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Definitions:

Vicarious Punishment

A process by which an individual observes another being punished and thus learns to refrain from the punished behavior.

Drug Tolerance

The phenomenon whereby increasing doses of a drug are required over time to achieve the same effect, often associated with addiction and dependence.

Behavior Modification

Behavior modification is the use of empirically demonstrated behavior change techniques to improve behaviors, often involving reinforcing desired behaviors and decreasing undesired ones.

Operant Conditioning

A teaching methodology where the impact of a behavior is fine-tuned by the application of motivating or deterring factors.