Chapter 09 The Capital Asset Pricing Model

Chapter 09 - The Capital Asset Pricing Model

78. Assume that a security is fairly priced and has an expected rate of return of 0.13. The market expected rate of return is 0.13 and the risk-free rate is 0.04. The beta of the stock is ___. A. 1.25. B. 1.7. C. 1. D. 0.95. E. ?1.3

Short Answer Questions

79. Discuss the differences between the capital market line and the security market line.

80. Discuss the assumptions of the capital asset pricing model, and how these assumptions relate to the \

81. Discuss the mutual fund theorem.

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Chapter 09 - The Capital Asset Pricing Model

82. Discuss how the CAPM might be used in capital budgeting decisions and utility rate decisions.

83. List and discuss two of the assumptions of the CAPM.

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Chapter 09 - The Capital Asset Pricing Model

Chapter 09 The Capital Asset Pricing Model Answer Key

Multiple Choice Questions

1. In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is A. unique risk. B. beta.

C. standard deviation of returns. D. variance of returns. E. skewness.

Once a portfolio is diversified, the only risk remaining is systematic risk, which is measured by beta.

AACSB: Analytic Bloom's: Remember Difficulty: Basic Topic: CAPM

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Chapter 09 - The Capital Asset Pricing Model

2. In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is A. unique risk. B. systematic risk.

C. standard deviation of returns. D. variance of returns. E. semi-variance.

Once a portfolio is diversified, the only risk remaining is systematic risk, which is measured by beta.

AACSB: Analytic Bloom's: Remember Difficulty: Basic Topic: CAPM

3. In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is A. unique risk. B. market risk.

C. standard deviation of returns. D. variance of returns. E. semi-variance.

Once a portfolio is diversified, the only risk remaining is systematic risk, which is measured by beta.

AACSB: Analytic Bloom's: Remember Difficulty: Basic Topic: CAPM

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