The Subjective Approach to Determining a Required Rate of Return

question 56

Multiple Choice

The subjective approach to determining a required rate of return for a stock includes
I. the rate of return on a long-term bond.
II. a risk premium for the perceived business risk of the asset.
III. a risk premium for assuming the risk of the market.
IV. the desired rate of return of the individual investor.

• A) I and III only
• B) II and IV only
• C) I, II and IV only
• D) I, II and III only

---

Definitions:

Memories

The mental storage of information, experiences, and learning, which can be recalled to inform and guide current behavior and thinking.

Fechner's Law

A principle in psychophysics that quantifies the relationship between the intensity of a physical stimulus and the intensity of the sensation it produces, suggesting a logarithmic relationship.

Weber's Law

A principle in psychology that proposes the smallest change in a stimulus that can be detected is proportional to the intensity of the original stimulus.

Sensation Strength

The intensity level at which a stimulus is perceived, influenced by physical properties and individual sensitivity.