Consider the Capital Asset Pricing Model

question 17

Multiple Choice

Consider the capital asset pricing model. The market degree of risk aversion, A, is 3. The risk premium is 2.25%. If the risk-free rate of return is 4%, the expected return on the market portfolio is ________.

• A) 6.75%
• B) 9%
• C) 10.75%
• D) 12%

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Definitions:

Expected Value

The long-term average value of a random variable, representing its mean outcome over an infinite number of trials.

Point Estimate

A single value that serves as the best guess or most likely value for a population parameter based on sample data.

Population Parameter

A numerical value that describes a characteristic of a population, such as mean, standard deviation, proportion, etc., usually estimated through samples.

Larger Sample Sizes

Refers to increasing the number of observations in a study to improve the reliability and validity of statistical inferences.