Suppose the returns on Security A are linearly related to four risk factors: F1,F2,F3,and F4.The required rate of return on Security A can be determined as follows:
.The risk-free rate is 4.5 percent.What is the required rate of return of Security A,where b1,b2,b3,and b4 are 0.4,0.8,0.6,and 0.7,respectively,and F1,F2,F3,and F4 are 5 percent,6 percent,10 percent,and 8 percent,respectively?
A) 18.40%
B) 20.60%
C) 22.90%
D) 24.30%

Question

Suppose the returns on Security A are linearly related to four risk factors: F1,F2,F3,and F4.The required rate of return on Security A can be determined as follows:  
.The risk-free rate is 4.5 percent.What is the required rate of return of Security A,where b1,b2,b3,and b4 are 0.4,0.8,0.6,and 0.7,respectively,and F1,F2,F3,and F4 are 5 percent,6 percent,10 percent,and 8 percent,respectively? 
A) 18.40% 
B) 20.60% 
C) 22.90% 
D) 24.30%

Quizplus · Accepted Answer

Security A's required return = 4.5% + 0.4*5% + 0.8*6% + 0.6*10% + 0.7*8% = 22.90%

Suppose the Returns on Security a Are Linearly Related to Four