The Two-Factor Model on a Stock Provides a Risk Premium

question 75

Multiple Choice

The two-factor model on a stock provides a risk premium for exposure to market risk of 9%, a risk premium for exposure to interest rate risk of (-1.3%) , and a risk-free rate of 3.5%. The beta for exposure to market risk is 1, and the beta for exposure to interest rate risk is also 1. What is the expected return on the stock?

• A) 8.7%
• B) 11.2%
• C) 13.8%
• D) 15.2%

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Definitions:

Vocational Identity

A sense of personal suitability to a particular profession or occupational category, often developed during adolescence.

Identity Foreclosure

A stage in identity development where an individual commits to an identity without exploring options, often based on the expectations of others rather than personal choice.

Religious Identities

Aspects of an individual's identity shaped by their beliefs, practices, and affiliations with religious or spiritual groups.

Role Confusion

A stage in Erik Erikson's psychosocial development theory where an individual struggles to form a clear sense of self or place in society.