Consider the CAPM

question 73

Multiple Choice

Consider the CAPM. The risk-free rate is 6%, and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3?

• A) 6%
• B) 15.6%
• C) 18%
• D) 21.6%

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Definitions:

Overconfidence

A cognitive bias where an individual's subjective confidence in their judgments is greater than the objective accuracy of those judgments.

Stockbrokers

Professionals who buy and sell stocks and other securities for clients in exchange for a fee or commission.

Market Average

A statistical measure that represents the overall movement of a specific set of stocks, indicating the general health of the stock market.

Availability Heuristic

A mental shortcut that relies on immediate examples that come to a person's mind when evaluating a specific topic, concept, method or decision.