Homework Answers
1) an equilibrium model.
2) a model that says only market related or systematic risk is relevant for an assets price.
3) a model that predicts the expected return for an asset.
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).
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...
8. Tests of the CAPM The CAPM is one of the most extensively tested models in...
8. Tests of the CAPM The CAPM is one of the most extensively tested models in finance. The following statements describe the assumptions, methods, and findings of several of these studies. Based on your understanding of these issues, which of the following statements are true? Check all that apply. Many studies of the CAPM have used (1) daily or monthly historical returns of the stocks and (2) the rate on both the 30-day U.S. Treasury bill and the long-term U.S....
please answer 8. Tests of the CAPM Aa Aa The CAPM is one of the most...
please answer
8. Tests of the CAPM Aa Aa The CAPM is one of the most extensively tested models in finance. The following statements describe the assumptions, methods, and findings of several of these studies. Based on your understanding of these issues, which of the following statements are true? Check all that apply Most tests of the CAPM have used portfolios of securities rather than individual stocks, due to the instability of the betas of individual securities In theory, the...
The standard CAPM implies:
The standard CAPM implies:
An assumption of CAPM is that investors do not face transaction costs. In particular, CAPM assumes...
An assumption of CAPM is that investors do not face transaction costs. In particular, CAPM assumes that markets are liquid in the sense that you can always trade any number of shares you would like to any time. In reality, the overall market may become more illiquid in certain times and less illiquid in other times. When the market is illiquid, investors are more hindered from trading by frictions in the market. Suppose that the price of a certain security...
Explain how the CAPM assists in measuring both risk and return. Explain how the CAPM assists...
Explain how the CAPM assists in measuring both risk and return. Explain how the CAPM assists in calculating the weighted average costs of capital WACC and it's components. why do some managers have difficulty applying the capital asset pricing model in financial decision making.
what are drawbacks of using CAPM
what are drawbacks of using CAPM
14. a. List reasons that an international extension of the CAPM is problemati. b. In an...
14. a. List reasons that an international extension of the CAPM is problemati. b. In an international extension of the CAPM, why would the optimal portfolio differ from the world market portfolio, as suggested by the traditional CAPM, even if the markets are fully efficient?
What is the formula for CAPM pricing error?
What is the formula for CAPM pricing error?
8. Tests of the CAPM The CAPM is one of the most extensively tested models in finance. The following statements describe the assumptions, methods, and findings of several of these studies. Based on your understanding of these issues, which of the following statements are true? Check all that apply. Many studies of the CAPM have used (1) daily or monthly historical returns of the stocks and (2) the rate on both the 30-day U.S. Treasury bill and the long-term U.S....
please answer
8. Tests of the CAPM Aa Aa The CAPM is one of the most extensively tested models in finance. The following statements describe the assumptions, methods, and findings of several of these studies. Based on your understanding of these issues, which of the following statements are true? Check all that apply Most tests of the CAPM have used portfolios of securities rather than individual stocks, due to the instability of the betas of individual securities In theory, the...
14. a. List reasons that an international extension of the CAPM is problemati. b. In an international extension of the CAPM, why would the optimal portfolio differ from the world market portfolio, as suggested by the traditional CAPM, even if the markets are fully efficient?
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