Suppose the Returns on Security a Are Linearly Related to Four

question 3

Multiple Choice

Suppose the returns on Security A are linearly related to four risk factors: F1,F2,F3,and F4.The required rate of return on Security A can be determined as follows:
.The risk-free rate is 4.5 percent.What is the required rate of return of Security A,where b1,b2,b3,and b4 are 0.4,0.8,0.6,and 0.7,respectively,and F1,F2,F3,and F4 are 5 percent,6 percent,10 percent,and 8 percent,respectively?

• A) 18.40%
• B) 20.60%
• C) 22.90%
• D) 24.30%

---

Definitions:

Income

Money received, typically on a regular basis, for work or through investments.

Preferences

Individual choices or inclinations towards certain opinions, objects, or outcomes over others.

Unrequited Love

A situation in which one person loves another but the other does not return that love.

Attraction

The force or interest that draws people together, often leading to friendships or romantic relationships.