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%

Interpret the \(R^2\) value correctly in the context of regression analysis.

Know the assumptions and conditions necessary for regression analysis.

Interpret the correlation coefficient (\(r\)) and its relationship to \(R^2\).

Understand that multiple factors can influence the results of a regression analysis beyond the variables considered.

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Definitions:

Expressed Agency

An agency created in a written or oral agreement. Also called agency by agreement.

Principal

The main party to a transaction, such as a buyer or seller in a contract, or an individual who empowers another (agent) to act on their behalf.

Contract Authority

A power granted to an individual or entity to enter into legally binding agreements on behalf of another person or entity.

Principal Duties

are the main responsibilities or tasks that an individual or entity is expected to perform as part of a job role or contractual agreement.