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%

---

Definitions:

Critical Thinking Error

A mistake in reasoning or process in evaluating information, leading to incorrect conclusions or judgments.

Preparedness

The state of being ready and able to deal with specific situations or emergencies.

Cognitive Development

The process by which one becomes an intelligent person.

William Perry

An American educator and psychologist known for his theory of intellectual and ethical development in college students.