market wide risk is more relevant for asset pricing than idiosyncratic risk because:

Question

Question

market wide risk is more relevant for asset pricing than idiosyncratic risk because:

college finance Multiple-Choice

Add a comment Improve this question Transcribed image text

Answer 1

Answer #1

investors generally hold diversified portfolios.

answered by: Andrew San Andres

Add a comment

Answer 2

Similar Homework Help Questions

Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model...

Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph the following concepts: (a) Capital Market Equilibrium in CAPM (b) Capital Market Line (c) Expected return for an arbitrary asset j: E(r;) = PRE + B,(E(TM) - PRF). Contrast this with the expected return on an efficient portfolio (d) Systematic and idiosyncratic risk
One key result of applying the Capital Asset Pricing Model is that the risk and return...

One key result of applying the Capital Asset Pricing Model is that the risk and return of an individual security should be analyzed by how that security affects the risk and return of the portfolio in which it is held. True False Portfolio diversification reduces the impact of market risk on the portfolio. True False Market risk refers to the tendency of a stock to move with the general economy. A stock with aboveaverage market risk will tend to be...
Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio...

Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio has an expected return of 9% and a standard deviation of 16%. Stock AAA has an expected return of 12%, a beta of 1.4, and a standard deviation of 28%. a. What is the risk-free rate? [1 point] b. What is the alpha of stock AAA? [1 point) c. What proportion of the total risk of stock AAA is idiosyncratic? [1 point]

Capital Asset Pricing Model Risk-free rate = 5% Return the (stock) Market = 12% Beta =...

Capital Asset Pricing Model Risk-free rate = 5% Return the (stock) Market = 12% Beta = 1.5 Calculate the cost of retained earnings using the Capital Asset Pricing Model.
Question 14 Why do we use Capital Asset Pricing Model (CAPM)? because it is impractical to...

Question 14 Why do we use Capital Asset Pricing Model (CAPM)? because it is impractical to account for the correlations of thousands of possible investments. because CAPM assumes that investors choose to hold the least diversified portfolio that includes all risky investments because the relevant risk of an investment is determined by how it contributes to the risk of this individual portfolio All of the above
Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing...

Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 10% 0.00 Market portfolio 14% 1.00 Project 0.67 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk. Integrative—Risk, return, and CAPM Wolff Enterprises must consider...

Explain the concepts of variance (total risk) and beta (systematic risk) in portfolio theory and the capital asset pricing model. Also explain why according to the capital asset pricing model that tot...

Explain the concepts of variance (total risk) and beta (systematic risk) in portfolio theory and the capital asset pricing model. Also explain why according to the capital asset pricing model that total risk should not be rewarded by the capital market. You may use diagrams in your explanation if you wish.
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of...

3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 2.5% Market...

Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 2.5% Market Return: 7% Beta: 1.5 Standard Deviation: 6% Debt: Equity Ratio: 40%

Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing...

Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 15% 1.00 Project 1.13 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk. a. The required rate of return for the...

market wide risk is more relevant for asset pricing than idiosyncratic risk because:

Homework Answers

Add Answer to:
market wide risk is more relevant for asset pricing than idiosyncratic risk because:

Post as a guest

Earn Coins

Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model...

One key result of applying the Capital Asset Pricing Model is that the risk and return...

Question 4 [3 points) Suppose that the Capital Asset Pricing Model (CAPM) holds. The market portfolio...

Capital Asset Pricing Model Risk-free rate = 5% Return the (stock) Market = 12% Beta =...

Question 14 Why do we use Capital Asset Pricing Model (CAPM)? because it is impractical to...

Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing...

Explain the concepts of variance (total risk) and beta (systematic risk) in portfolio theory and the capital asset pricing model. Also explain why according to the capital asset pricing model that tot...

3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of...

Calculate the firm’s expected return using the capital asset pricing model: Risk Free Rate: 2.5% Market...

Integrative—Risk, return, and CAPM Wolff Enterprises must consider one investment project using the capital asset pricing...

market wide risk is more relevant for asset pricing than idiosyncratic risk because:

Homework Answers

Add Answer to: market wide risk is more relevant for asset pricing than idiosyncratic risk because:

Post as a guest

Earn Coins

Add Answer to:
market wide risk is more relevant for asset pricing than idiosyncratic risk because: