Question

Which of the following statements is/are incorrect? 1) A security's beta measures its market risk. 2) If investors become less risk averse, the slope of SML will decrease accordingly. 3) The tighter the probability distribution of its expected future return, the greater risk of a given investment as measured by its standard deviation. 4) SML is a graphical depiction of CAPM?

Answer #1

All the statement except statement 3 are true.

This is because the tighter the probability distribution of its expected future return, the greater risk of a given instrument is not measured by standard deviation,it is measured by its expected rate of return through the probability analysis.

rest of the statements are true because the beta measures the systematic risk which is also known as the market risk, and SML is a graphical depiction of CAPM.

Show the answer would be statement ( 3).

QUESTION 17
Which of the following statements is most correct?
a. An increase in expected inflation could be expected to
increase the required return on a riskless asset and on an average
stock by the same amount, other things held constant.
b. A graph of the SML would show required rates of return on the
vertical axis and standard deviations of returns on the horizontal
axis.
c. If two "normal" or "typical" stocks were combined to form a
2-stock portfolio,...

The security market line (SML) is an equation that shows the
relationship between risk as measured by beta and the required
rates of return on individual securities. The SML equation is given
below:
If a stock's expected return plots on or above the SML, then the
stock's return is -Select-insufficientsufficientCorrect 1 of Item 1
to compensate the investor for risk. If a stock's expected return
plots below the SML, the stock's return is
-Select-insufficientsufficientCorrect 2 of Item 1 to...

Assume that CAPM holds. Which of the following statements is
TRUE?
a)Beta indicates a stock’s diversifiable risk
b)Two stocks with the same stand-alone risk must have the same
betas
c)The slope of the security market line is given by the market
risk premium
d)If the beta of a Stock doubles, then its required rate of
return must also double
e)If the risk-free rate decreases, then the market risk premium
must also decrease

Which of the following statements about the beta coefficient is
false?
A
A stock’s beta coefficient measures its volatility relative to
the market portfolio.
B
A stock’s beta coefficient can be estimated by plotting the
stock’s returns versus the market portfolio’s returns.
C
A stock’s reported beta coefficient is based on forecasted
future volatility.
D
A stock with a beta coefficient greater than 1.0 is said to be
riskier than the market portfolio.
E
Using the capital asset pricing model,...

1. Which of the following statements is incorrect?
a. Compounding increases the growth of the total interest
earned.
b. Compound interest consists of both simple interest and
interest on interest.
c. All the answers are correct except one.
d. Compounding is the process by which interest earned on an
investment is reinvested so that in future periods, there is
interest on interest as well as the original principal.
e. The term (1 + i) is the present value interest factor,...

1. Which of the following statements is incorrect?
a. The time value of money implies that a dollar received today
is worth more than a dollar received tomorrow.
b. The time value of money implies that the further in the
future you receive a dollar, the more it is worth today.
c. All the answers are correct except one.
d. A dollar today is worth more than a dollar received in the
future.
e. The earnings from compounding drive much...

Which of the following statements is CORRECT?
Select one: a. The beta of a portfolio of stocks is always
smaller than the betas of any of the individual stocks.
b. The beta of a portfolio of stocks is always larger than the
betas of any of the individual stocks.
c. It is theoretically possible for a stock to have a beta of
1.0. If a stock did have a beta of 1.0, then, at least in theory,
its required rate...

1. Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6.
Which of the following statements is correct?
A. Asset 1 is more volatile than Asset 2.
B. Asset 1 has a higher expected return than Asset 2.
C. In a regression with individual asset’s return as the
dependent variable and the market’s return as the independent
variable, the R-squared value is higher for Asset 1 than it is for
Asset 2.
D. All of...

Which of the following statements are true regarding
UNSYSTEMATIC RISK?
I. Unsystematic risk can be effectively eliminated through
portfolio diversification.
II. Unsystematic is compensated for by a risk premium.
III. Unsystematic risk is measured by beta.
IV. As rational investors hold well-diversified portfolios, the
market will not pay a risk premium for holding unsystematic
risk.
A.
I and IV only
B.
II only
C.
II and III only.
D.
I, III, and IV only.
E.
III and IV only.
You...

Which of the following statements are FALSE?
The CAPM identifies the market portfolio as the efficient
portfolio.
If some security were not part of the efficient portfolio, then
every investor would want to own it, and demand for this security
would increase causing its expected return to fall until it is no
longer an attractive investment.
If investors have homogeneous expectations, then each investor
will identify the same portfolio as having the highest Sharpe ratio
in the economy.
The market...

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