Which one of the following statement about the capital asset pricing model is correct
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Option 2 is correct
Rewards investors based on systematic risk.
In CAMP model beta is used which represents systematic risk.
Which one of the following statement about the capital asset pricing model is correct 1) assumes...
The capital asset pricing model: applies to portfolios but not too individual securities. rewards investors based on total risk assumed considers the relationship between the fluctuations in a security's returns versus the market's returns assumes the market has a beta of zero and the risk-free rate is positive. assumes the market risk premium is constant over time.
Question 13 (0.2 points) Which one of the following is the computation of the risk premium for an individual security? E(R) is the expected return on the security, Rfis the risk-free rate, B is the security's beta, and E(RM) is the expected rate of return on the market. O 1) E(RM) - RF O2) B[E(RM) - RA O 3) E(R) - E(RM) 04) E(R) - [E(RM) + RA View hint for Question 13 Question 14 (0.2 points) Which one of...
Based on the capital asset pricing model, investors are compensated based on which of the following? I. Market risk premium II. Risk-free rate III. Portfolio beta IV. Unsystematic risk 1) I, II, III, and IV 2) II and IV only 3) 1,111, and IV only 4) I and III only 5) I, II, and Ill only
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply.Investors assume that their investment activities won't affect the price of a stock.There are no taxes.Assets won't be short sold.Asset quantities aren't given.Consider the equation for the Capital Asset Pricing Model (CAPM):$$ \hat{r}_{1}=r_{R F}+\left(\hat{r}_{M}-r_{R F}\right) \times \frac{\operatorname{Cov}\left(r_{i}, r_{M}\right)}{\sigma_{M}^{2}} $$In this equation, the term \(r_{R F}\) represents therate of return on a risk-free bondSuppose that the market's average excess return on stocks is 6.00 %...
Which of the following statements about risk measures is correct? a. Beta is a measure of systematic risk, whereas standard deviation is the measure of total risk. b. Beta is a measure of total risk, whereas standard deviation is the measure of unsystematic risk. c. Beta is a measure of total risk, whereas standard deviation is the measure of systematic risk. d. Beta is a measure of total risk, whereas Standard deviation is the measure of systematic risk. e. Beta...
3. The basics of the Capital Asset Pricing Model Aa Aa which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply Investors have identical estimates of expected retums but not of variances. Investors can borrow an unlimited amount at a risk-free rate Investors assume that their investment activities won't affect the price of a stock. All investors are price givers. Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(, M) In...
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...
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...
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.
a. Fill in the missing values in the table. b. Is the stock of Firm A correctly priced according to the capital-asset-pricing model (CAPM)? What about the stock ofFirm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?You have been provided the following data on the securities of three firms, the market portfolio, and the risk-free asset:Security Expected Return Standard Deviation Correlation BetaFirm A 0.13 0.12 ? 0.9Firm...