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 more volatile than a well-diversified market portfolio. Such a stock should have a beta of more than 1.0.
True
False
Homework Answers
1. False . CAPM analyses risk with respect to market and
portfolio and not individual securities
2. False. Market Risks like inflation and interest rate affect all
stocks and cannot be diversified.
3. True. Beta is higher than 1 with higher market risk.
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One key result of applying the Capital Asset Pricing Model is
that the risk and return...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and...
od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk and Rates of Return:...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
Capital Asset Pricing model
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...
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...
Which statement is TRUE? a) All of these statements are false b) The measure of risk...
Which statement is TRUE? a) All of these statements are false b) The measure of risk for a security held in a diversified portfolio is standard deviation c) As more stocks are added to a portfolio, total risk is expected to fall but at an increasing rate. So if one were to invest in enough stocks, total risk could be eliminated. d) Diversification reduces the portfolio’s expected return because it reduces the portfolio’s total risk e) Proper diversification can reduce...
The graph shows the relationship between risk, measured as the standard deviation of a stock portfolio's return, and the number of different stocks in the portfolio for a hypothetical stock market.
6. Diversification and riskThe graph shows the relationship between risk, measured as the standard deviation of a stock portfolio's return, and the number of different stocks in the portfolio for a hypothetical stock market.True or False: Increasing the number of stocks in a portfolio reduces market risk.TrueFalseConsider two stock portfolios. Portfolio A consists of four different stocks from firms in different industries. Portfolio B consists of 10 different stocks, also from firms in different industries. The return on Portfolio A...
A stock's contribution to the market risk of a well-diversified portfolio is called the Capital Asset...
A stock's contribution to the market risk of a well-diversified portfolio is called the Capital Asset Pricing Model (CAPM), this risk can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. risk. According to Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Beta measures the volatility in stock movements relative...
1. According to the basic stock valuation model, the value an investor assigns to a share of stock is dependent upo...
1. According to the basic stock valuation model, the value an investor assigns to a share of stock is dependent upon the length of time the investor plans to hold the stock. 2. True b. False Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be greater than 1.0. a. True b. False...
Need ASAP Just Answers Question 36 Based on the capital asset pricing model, which one of...
Need ASAP Just Answers Question 36 Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else constant? Select one: a. An increase in the risk level of that security as measured by the standard deviation b. An increase in the risk-free rate given a security beta of 1.42 c. A decrease in the market rate of return given a security beta of 1.13 d. A decrease in...
- The tendency for tow variables to move together refers to their correlation (TRUE/FALSE)? - Diversifiable...
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od The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held -Select- The CAPM states that any stock's required rate of return is -Select the risk-free rate of return plus a risk premium that reflects only the risk remaining -Select- diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically -Select the stock's risk when it is held alone. Therefore, the risk and...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held 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...
6. Diversification and riskThe graph shows the relationship between risk, measured as the standard deviation of a stock portfolio's return, and the number of different stocks in the portfolio for a hypothetical stock market.True or False: Increasing the number of stocks in a portfolio reduces market risk.TrueFalseConsider two stock portfolios. Portfolio A consists of four different stocks from firms in different industries. Portfolio B consists of 10 different stocks, also from firms in different industries. The return on Portfolio A...
A stock's contribution to the market risk of a well-diversified portfolio is called the Capital Asset Pricing Model (CAPM), this risk can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. risk. According to Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Beta measures the volatility in stock movements relative...
1. According to the basic stock valuation model, the value an investor assigns to a share of stock is dependent upon the length of time the investor plans to hold the stock. 2. True b. False Market risk refers to the tendency of a stock to move with the general stock market. A stock with above-average market risk will tend to be more volatile than an average stock, and its beta will be greater than 1.0. a. True b. False...
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