Suppose the Returns on Security B Are Linearly Related to Four

question 105

Multiple Choice

Suppose the returns on Security B are linearly related to four risk factors: F1,F2,F3,and F4.The required rate of return on Security B can be determined as follows:
.The risk-free rate is 5 percent.What is the risk premium for F4,if the required return of Security B is 20 percent,b1,b2,b3,and b4 are 0.5,0.7,0.6,and 0.9,respectively,and F1,F2,and F3 are 4.25 percent,5.75 percent,and 6.5 percent,respectively?

• A) 4.95%
• B) 5.50%
• C) 7.42%
• D) 11.06%

---

Definitions:

Cost

The expenditure or amount of resources (financial, time, labor) required to achieve something.

Time-Series Designs

Research designs that involve repeated measurements of dependent variables over time, both before and after a treatment or intervention, to assess change.

Selection Effects

Biases introduced into research when the participants or subjects are not randomly assigned, potentially leading to unrepresentative samples and skewed results.

Observations

The process of closely monitoring, recording, or noticing specific behaviors, actions, or phenomena, typically as a data collection method in research.