The Risk-Free Rate of Return Is 4

question 46

Multiple Choice

The risk-free rate of return is 4.2 percent, the expected market return is 9 percent, and the beta for Lea, Inc.is 1.12.What is Lea's required rate of return?

• A) 9.58%
• B) 10.08%
• C) 13.70%
• D) 14.28%

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Definitions:

Covariance

A measure of how two variables move in relation to each other, used in finance to diversify portfolios and minimize risk.

Beta

A measure of a stock's volatility in relation to the overall market, indicating the level of risk associated with a particular investment.

Market Risk

The risk of losses in financial markets due to factors such as economic recessions, political turmoil, or changes in interest rates, affecting the overall market.

Asset Allocation

The strategy of distributing investments among various asset classes, such as stocks, bonds, and cash, to achieve a desired risk-reward balance.