Assume all assets are correctly priced in CAPM equilibrium. Assets X and Y have the same...
Assume all assets are correctly priced in CAPM equilibrium. Assets X and Y have the same CAPM beta, but X has much more unique risk than Y.
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E(rX) > E(rY) because X has more unique risk. |
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It is possible E(rX) < E(rY) because unique risk is diversified away. |
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Correlation of X with the market = correlation of Y with the market. |
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Correlation of X with the market > Correlation of Y with the market. |
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None of the above. |
Homework Answers
Option D None of the above.
Option A and B is false because expected returns is dependent on beta and if beta is same returns will be the same
Option C and D is false because we cannot comment about the correlation from beta if we are not provided standard deviation
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