Asked by Spanky Dixon on Apr 24, 2024
Verified
Which of the following is correct regarding the CAPM?
A) The expected return for a particular asset depends on the pure time value of money as measured by beta.
B) The expected return for a particular asset depends on the amount of systematic risk as measured by the risk free rate.
C) The standard deviation for a particular asset depends on the reward for bearing risk as measured by beta.
D) Implicit in the CAPM is that all risky assets have the same reward to risk ratio.
E) The SML and CAPM illustrate that the higher the beta, the lower the expected return.
CAPM
The Capital Asset Pricing Model, a theoretical framework used to determine the expected return on an investment based on its risk in comparison to the market.
Systematic Risk
A type of risk associated with the entire market or a particular market segment that remains unaffected by diversification efforts.
Risk Free Rate
The rate of return on an investment with no risk of financial loss, often represented by government bonds.
- Grasp the principles of the Capital Asset Pricing Model (CAPM) and its implications on expected returns.
Verified Answer
Learning Objectives
- Grasp the principles of the Capital Asset Pricing Model (CAPM) and its implications on expected returns.
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