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:

Normal Probability Distribution

A standard normal distribution, often used in statistics to represent real-valued random variables of unknown distributions.

Standard Deviation

A criteria used to determine the amount of spread or variation among a group of data values.

Negative Value

A number that is less than zero.

Standard Normal Distribution

A probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean, typically represented with a mean of 0 and a standard deviation of 1.