Asked by
Amanda Strong
on Nov 03, 2024
Verified
According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio increases
A) directly with alpha.
B) inversely with alpha.
C) directly with beta.
D) inversely with beta.
E) in proportion to its standard deviation.
Risk Premium
The extra return above the risk-free rate that investors require as compensation for the risk of an investment.
Alpha
In investing, alpha is the measure of an investment's return relative to a benchmark index's performance, representing the value that a portfolio manager adds or subtracts from a fund's return.
Beta
A measure of a stock's volatility in relation to the overall market; a beta greater than 1 indicates greater volatility than the market.
- Gain insight into the notion of beta and its importance in evaluating stock risk.
- Acquire knowledge of the foundational relationship between expected return and beta as part of CAPM.
Verified Answer
KC
Learning Objectives
- Gain insight into the notion of beta and its importance in evaluating stock risk.
- Acquire knowledge of the foundational relationship between expected return and beta as part of CAPM.