50.1K

Verified Solution

Link Copied!

1. 1) Your calculations convince you that XYZ has a beta of 1.0 and a Jensens alpha of 1.5% per year. The expected return on the market portfolio is 12%. You conclude that

1. XYZ is priced correctly
2. XYZ is overpriced
3. The expected rate of return on XYZ from the CAPM equation should be 13.5%
4. The expected rate of return on XYZ happens to be 12%
5. None of the above

2) CAPM assumes that investors prefer low-beta stocks to high-beta stocks (True / False)

3) According to CAPM, no investor will hold a stock with a negative beta because it provides a rate of return below that of the risk-free rate. (True / False)

4) The _____ shows the relationship between expected return and systematic risk

1. CAL
2. SML
3. CML
4. Characteristic line
5. Efficient Frontier

5) In the CAPM, an asset with a negative beta has

1. negative standard deviation of returns
2. zero standard deviation of returns
3. positive standard deviation of returns
4. no way of existing

6) The slope of the Security Market Line

a. is equal to the Sharpe ratio of the market portfolio

b. is equal to the market risk premium

c. depends on beta

d. none of the above

7) Market beta of a security:

a. Measures the sensitivity of the return on that security to the return on the market

b. Is a measure of non-diversifiable risk

c. Both a and b

1. 8) Under CAPM, all securities must lie on the same Capital Market Line. (True / False)

Answer & Explanation Solved by verified expert

See Answer