Assume That the Risk-Free Rate Is 9% and That the Market

question 16

Multiple Choice

Assume that the risk-free rate is 9% and that the market portfolio has an expected return of 17%.Under equilibrium conditions as described by the CAPM,what would be the expected return for a portfolio having no diversifiable risk and a beta of 0.75?

• A) 17%
• B) 9%
• C) 20%
• D) 15%

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Definitions:

Economic Profit

The difference between total revenue and total costs, including both explicit and implicit costs, indicating the financial performance and profitability from an economic standpoint beyond just accounting profit.

Purely Competitive

A market structure characterized by a large number of sellers and buyers where each has a negligible impact on market price and outcomes.

Profit-maximizing Level

The point at which a firm achieves the highest possible profit, where marginal revenue equals marginal cost.

Average Variable Cost

The total variable costs (costs that change with the level of output) of a firm divided by the quantity of output produced.