What is "E(Rm) - Rf" called in the CAPM equation? Group of answer choices a. The...
What is "E(Rm) - Rf" called in the CAPM equation?
Group of answer choices a. The Capital Market Line (CML). b. The stock's risk premium. c. The market's risk premium. d. The Characteristic Line.
Homework Answers
The correct answer is c. The market's risk premium
As per Capital Asset Pricing Model (CAPM)
Re = Rf + (Rm-Rf) β
Where Re = Required rate of return
Rf = Risk free rate of return
Rm – Market Return or Expected Return on Market
-E(Rm)
Rm-Rf = Market Risk Premium
β – Beta
Given the assumptions of CAPM only relevant mesaure of risk is
systematic risk which is measured in terms of beta.Market risk
premium shows the extra return or compensation required for one
beta.
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What is "E(Rm) - Rf" called in the CAPM equation?
Group of answer choices a. The...
Name the following equation: Rf + [Rm - Rf]Beta Group of answer choices a. The Capital...
Name the following equation: Rf + [Rm - Rf]Beta Group of answer choices a. The Capital Market Line (CML). b. Security Market Line (SML) c. The Market Risk Premium. d. The Characteristic Line
Suppose that CAPM holds. Let Rf denote the risk free rate, E(RM) the expected return of the...
Suppose that CAPM holds. Let Rf denote the risk free rate, E(RM) the expected return of the market portfolio, and sigmaMthe standard deviation of the market portfolio. Now consider some portfolio on the capital market line, with expected return E(R) and standard deviation sigma. What is the beta of this portfolio? Select one: 1. E(R)/sigma 2. sigmaM/sigma 3. sigma/sigmaM 4. E(RM)-Rf
The risk-free rate is 4.5%, the market risk premium = ( E(Rm) - Rf) is 10.1%,...
The risk-free rate is 4.5%, the market risk premium = ( E(Rm) - Rf) is 10.1%, and the stock’s beta is 1.3. What is the required rate of return on the stock, E(Ri)? Use the CAPM equation.
When using 60 months of data to calculate beta, the name of the regression line is:...
When using 60 months of data to calculate beta, the name of the regression line is: Group of answer choices a. The Capital Market Line (CML). b. Security Market Line (SML) c. The Market Risk Premium. d. The Characteristic Line
Consider the equation for the Capital Asset Pricing Model (CAPM): îi = rrF + (îm-PRE) *...
Consider the equation for the Capital Asset Pricing Model (CAPM): îi = rrF + (îm-PRE) * Cov(ļi, "M) 02M In this equation, the term Cov (ri, rm)lo?m represents the A) Covariance between stock i and the market B) stock's beta coefficient C) variants of markets return Suppose that the market's average excess return on stocks is 6.00% and that the risk-free rate is 2.00%. Complete the following table by computing expected returns to stocks for each beta coefficient using the...
CAPM For a risky return r, CAPM equation is Er -r- B(E[rm] -r), where r is risk-free rate, Tm is ...
CAPM For a risky return r, CAPM equation is Er -r- B(E[rm] -r), where r is risk-free rate, Tm is market return, and is loading of risky return r on market return rm In what follows, X and Y denote arbitrary assets, B risk-free bond, M market portfolio. Determine which of the following scenarios are consistent or inconsistent with mean-variance efficiency (that is, CAPM). In your answer, write "Consistent" or "Inconsistent", and give brief explanation. 25% 12% 0.8 1.2 25...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns must lie on the capital market line (CML). B. All securities' expected returns must be on the security market line (SML). C. The slope of the security market line (SML) must be the market risk premium. D. The slope of the capital market line (CML) is the Sharpe Ratio of the market portfolio. E. A security's beta coefficient will be negative if its return...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Suppose that the risk-free rate is Rf = 2.70% and the risk-premium is E(Rm) - Rf...
Suppose that the risk-free rate is Rf = 2.70% and the risk-premium is E(Rm) - Rf = 7.23%. According to Gordon's Growth Model, if a company has a current dividend of DO = $24.40 per share, a constant growth rate of g = 5.62%, and B = 1.26, what is its stock price?
5. The Capital Market Line and the Security Market Line Aa Aa E In the following...
5. The Capital Market Line and the Security Market Line Aa Aa E In the following table, indicate whether each statement refers to the Capital Market Line (CML) or to the Security Market Line (SML). Capital Market Line (CML) Security Market Line (SML) Statement This line defines the linear relationship between the expected return on an efficient portfolio and its standard deviation. The slope of this line, TM - PRF) / OM, reflects the investors' aggregated, or market-level, expected premium...
Consider the equation for the Capital Asset Pricing Model (CAPM): îi = rrF + (îm-PRE) * Cov(ļi, "M) 02M In this equation, the term Cov (ri, rm)lo?m represents the A) Covariance between stock i and the market B) stock's beta coefficient C) variants of markets return Suppose that the market's average excess return on stocks is 6.00% and that the risk-free rate is 2.00%. Complete the following table by computing expected returns to stocks for each beta coefficient using the...
CAPM For a risky return r, CAPM equation is Er -r- B(E[rm] -r), where r is risk-free rate, Tm is market return, and is loading of risky return r on market return rm In what follows, X and Y denote arbitrary assets, B risk-free bond, M market portfolio. Determine which of the following scenarios are consistent or inconsistent with mean-variance efficiency (that is, CAPM). In your answer, write "Consistent" or "Inconsistent", and give brief explanation. 25% 12% 0.8 1.2 25...
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. O Asset quantities are given and fixed. There are no transaction costs. Taxes are accounted for. All investors focus on a single holding period. O Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, rm) ři = rre + Cím – PRF) x In this equation, the term Cov(ri, rm) / om represents the Suppose that the market's average excess return...
Suppose that the risk-free rate is Rf = 2.70% and the risk-premium is E(Rm) - Rf = 7.23%. According to Gordon's Growth Model, if a company has a current dividend of DO = $24.40 per share, a constant growth rate of g = 5.62%, and B = 1.26, what is its stock price?
5. The Capital Market Line and the Security Market Line Aa Aa E In the following table, indicate whether each statement refers to the Capital Market Line (CML) or to the Security Market Line (SML). Capital Market Line (CML) Security Market Line (SML) Statement This line defines the linear relationship between the expected return on an efficient portfolio and its standard deviation. The slope of this line, TM - PRF) / OM, reflects the investors' aggregated, or market-level, expected premium...
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