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

question 28

Multiple Choice

The two-factor model on a stock provides a risk premium for exposure to market risk of 12%, a risk premium for exposure to silver commodity prices of 3.5%, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity prices is also 1. What is the expected return on the stock?

• A) 11.6%
• B) 13%
• C) 15.3%
• D) 19.5%

---

Definitions:

Risky Shift

The phenomenon where a group collectively decides on a course of action that is more extreme than they would have decided individually.

Group Polarization

The tendency for a group to make decisions that are more extreme than the initial inclination of its members following group discussion.

Political Organization

A political organization refers to a group structured to promote, pursue, and achieve political objectives and ideologies.

Groupthink

a psychological phenomenon that occurs within a group of people when the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.