Question

A- The CAPM says that the average return on a stock should be at least the...

A- The CAPM says that the average return on a stock should be at least the return on a riskless asset and compensation for bearing

choose one of the following:

1-firm-specific risk. 2-market risk. 3-firm-specific and market risk. 4-alpha risk. 5- beta risk. 6- alpha and beta risks.

B- Since the market portfolio beta is equal to ---------------------a stock with a beta of 1.00 is---------------------the market portfolio.

choose two of the following for each blink:

1- 0 2- 1 3-100 4- relatively less risky than. 5- relatively more risky than. 6- equally as risky as.

C- In the CAPM, firm-specific risk is:

choose one of the following :

1-An important part of the CAPM equation. 2-Ignored because investors hold a fully diversified portfolio. 3-Part of market risk. 4-Part of the minimum variance portfolio.

D- In the CAPM, the market portfolio is the---------------------in an investment opportunity set composed of all risky traded assets.

choose one of the following: 1- minimum variance portfolio. 2- tangency portfolio.

E- Suppose the return on a riskless asset is 4% and the market risk premium is 7%,  According to the CAPM, a stock with a beta of 0.5 will have an expected return of:

Type your answer using percent expression.

Homework Answers

Answer #1

A- 2-market risk. Since CAPM assumes that the portfolio is fully diversified so the only risk remaining is the systematic risk or market risk.

B- Since the market portfolio beta is equal to 1 a stock with a beta of 1.00 is equally as risky as the market portfolio.

C- 2-Ignored because investors hold a fully diversified portfolio.

D- 2- tangency portfolio. Since market portfolio is the optimal risky portfolio.

E- Expected return = 4% + 0.5*(7% - 4%) = 5.5%

Please do rate me and mention doubts, if any, in the comments section.

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