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.
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%
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