The standard CAPM implies:
The standard CAPM implies:
Homework Answers
Which of the following is correct regarding the CAPM? a. The CAPM implies that the return...
Which of the following is correct regarding the CAPM? a. The CAPM implies that the return of an investor equals the market premium magnified by the portfolio’s beta plus the risk-free rate of return. b. The CAPM assumes investors are not rational and have certain behavioral biases. c. CAPM believes that a portion of total risk remains even after diversification. d. The CAPM assumes investors have modest transaction costs (including taxes).
6. Assume CAPM holds: Are the following true or false? a. Stocks with a beta of...
6. Assume CAPM holds: Are the following true or false? a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile securities. c. You can construct a portfolio with beta of 75 by investing.75 of the investment budget in T-bills and the remainder in the market portfolio.
The meaning of a 0 standard deviation implies The problem with calculating the deviation with the...
The meaning of a 0 standard deviation implies The problem with calculating the deviation with the formula ∑(Xi – Xbar) is the The standard deviation of a distribution will always be ____________than the variance of the distribution. If a distribution of scores has a mean of 40 and a range of 0,it means The variance in mathematics scores for middle school students in Detroit is 100 points. The standard deviation for middle school students’ math scores in Cleveland is 7....
Assume that the assumptions of the CAPM hold. The expected return and the standard deviation of...
Assume that the assumptions of the CAPM hold. The expected return and the standard deviation of the market portfolio are 7% and 14%, respectively. There are two individual stocks A and B: Mean Return A: 4% Standard Deviation A: 18% Mean Return B: 12% Standard Deviation B: 36% Stock A has a correlation of 0.2 with the market portfolio. A.What is the beta of stock A? B.What is the risk free rate? C.What is the beta of a portfolio with...
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the...
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the following return characteristics: Portfolio X Y Z Expected return 7.5% 5% 10% Standard deviation 5% 10% 15% a) Explain why beta is the appropriate measure of risk in this world. (5 marks) b) Portfolio Y is known to be uncorrelated with the market. Explain why this property implies that the risk-free rate in the economy is 5%. (5 marks) c) It is known that...
p implies r q implies r conclusion (p or q ) implies r show they sre...
p implies r
q implies r
conclusion (p or q ) implies r
show they sre logical equivalent
(pVa)
(pVa)
Standard economic theory assumes that people behave rationally. The winner’s curse implies that people behave irrationally...
Standard economic theory assumes that people behave rationally. The winner’s curse implies that people behave irrationally by paying more for an asset than it is worth. Can we reconcile the winner’s curse with rational behavior? 2-3 paragraphs in length including your own opinions and examples.
Under the CAPM, an asset with a lower standard deviation than the market can never have a β less than −1. True or false...
Under the CAPM, an asset with a lower standard deviation than the market can never have a β less than −1. True or false?
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard...
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard deviation of 25%, then what is asset B's expected return under the CAPM?
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk...
When looking at the CAPM, which of the statements below is FALSE? A) The CAPM formula...
When looking at the CAPM, which of the statements below is FALSE? A) The CAPM formula is the linear equation that describes the Security Market Line (SML). B) The CAPM in its ex-ante version is a theoretical equilibrium model. C) In reality, the CAPM hardly holds true such that it was further developed into multi-factor models like a 5-factor model. D) The CAPM can be further developed into multi-factor models like the Fama-French 3-factor model which also allows to analyze...
6. Assume CAPM holds: Are the following true or false? a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile securities. c. You can construct a portfolio with beta of 75 by investing.75 of the investment budget in T-bills and the remainder in the market portfolio.
Assume the CAPM holds. Consider three feasible portfolios of stocks X, Y and Z with the following return characteristics: Portfolio X Y Z Expected return 7.5% 5% 10% Standard deviation 5% 10% 15% a) Explain why beta is the appropriate measure of risk in this world. (5 marks) b) Portfolio Y is known to be uncorrelated with the market. Explain why this property implies that the risk-free rate in the economy is 5%. (5 marks) c) It is known that...
p implies r
q implies r
conclusion (p or q ) implies r
show they sre logical equivalent
(pVa)
(pVa)
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk premium is 0.07, and the market risk premium has a standard deviation of 25%, then what is asset B's expected return under the CAPM?
Asset A has a CAPM beta of 1.5. The covariance between asset A and asset B is 0.13. If the risk-free rate is 0.05, the expected market risk...
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