Asked by Manuel Rodriguez on May 07, 2024
Verified
According to the capital asset pricing model, in equilibrium ________.
A) all securities' returns must lie below the capital market line
B) all securities' returns must lie on the security market line
C) the slope of the security market line must be less than the market risk premium
D) any security with a beta of 1 must have an excess return of zero
Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) is a theoretical framework used to determine the expected return on an investment, factoring in risk and the time value of money.
Security Market Line
The Security Market Line (SML) is a graphical representation in financial markets that depicts the expected rate of return of an investment as a function of its systematic, or market, risk, as measured by beta.
Capital Market Line
A line used in the Capital Asset Pricing Model to illustrate the rates of return for efficient portfolios depending on the level of risk free rate and the level of market risk.
- Describe the real-world uses and constraints of the Capital Asset Pricing Model in making financial decisions.
Verified Answer
Learning Objectives
- Describe the real-world uses and constraints of the Capital Asset Pricing Model in making financial decisions.
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