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Exam 9: The Capital Asset Pricing Model

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Question 41

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The security market line (SML)

A) can be portrayed graphically as the expected return-beta relationship.
B) can be portrayed graphically as the expected return-standard deviation of market returns relationship.
C) provides a benchmark for evaluation of investment performance.
D) can be portrayed graphically as the expected return-beta relationship and provides a benchmark for evaluation of investment performance.
E) can be portrayed graphically as the expected return-standard deviation of market returns relationship and provides a benchmark for evaluation of investment performance.

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Question 42

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For the CAPM that examines illiquidity premiums, if there is correlation among assets due to common systematic risk factors, the illiquidity premium on asset i is a function of

A) the market's volatility.
B) asset i's volatility.
C) the trading costs of security i.
D) the risk-free rate.
E) the money supply.

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Question 43

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According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rate of return is a function of

Security A has an expected rate of return of 0.10 and a beta of 1.3.The market expected rate of return is 0.10 and the risk-free rate is 0.04.The alpha of the stock is

Your opinion is that Boeing has an expected rate of return of 0.08.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model, this security is

One of the assumptions of the CAPM is that investors exhibit myopic behavior.What does this mean

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

According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rate of return is a function of

Your opinion is that security C has an expected rate of return of 0.106.It has a beta of 1.1.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model, this security is

Your opinion is that security A has an expected rate of return of 0.145.It has a beta of 1.5.The risk-free rate is 0.04 and the market expected rate of return is 0.11.According to the Capital Asset Pricing Model, this security is

The amount that an investor allocates to the market portfolio is negatively related to I) the expected return on the market portfolio. II) the investor's risk aversion coefficient. III) the risk-free rate of return. IV) the variance of the market portfolio.

You invest 50% of your money in security A with a beta of 1.6 and the rest of your money in security B with a beta of 0.7.The beta of the resulting portfolio is

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Which statement is not true regarding the market portfolio

What is the expected return of a zero-beta security

As a financial analyst, you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 5% and the expected market rate of return is 10%.Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM, the appropriate hurdle rate would be

Your opinion is that Boeing has an expected rate of return of 0.0952.It has a beta of 0.92.The risk-free rate is 0.04 and the market expected rate of return is 0.10.According to the Capital Asset Pricing Model, this security is

Given are the following two stocks A and B: If the expected market rate of return is 0.09 and the risk-free rate is 0.05, which security would be considered the better buy and why

The capital asset pricing model assumes

Empirical results regarding betas estimated from historical data indicate that betas