FINANCE 310

According to the Capital Asset Pricing Model (CAPM) a well diversified portfolio's rate of return is a function of

market risk beta risk systematic risk

According to the Capital Asset Pricing Model (CAPM), overpriced securities have

negative alpha

According to the Capital Asset Pricing Model (CAPM), a security with a A.positive alpha is considered overpriced. B.zero alpha is considered to be a good buy. C.negative alpha is considered to be a good buy. D.positive alpha is considered to be underpriced.

positive alpha is considered to be underpriced.

According to the Capital Asset Pricing Model (CAPM), underpriced securities have

positive alphas

The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to A.0.06. B.0.144. C.0.12. D.0.132. E.0.18. E(R) = 6% + 1.2(12 - 6) = 13.2%.

0.132

The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to A.0.142. B.0.144. C.0.153. D.0.134. E.0.117. E(R) = 5.6% + 1.25(12.5 - 5.6) = 14.225%.

0.142

The market portfolio has a beta of

1

Which statement is true regarding the market portfolio?I) It includes all publicly traded financial assets.II) It lies on the efficient frontier.III) All securities in the market portfolio are held in proportion to their market values.IV) It is the tangency point between the capital market line and the indifference curve. A.I only B.II only C.III only D.IV only E.I, II, and III

I) It includes all publicly traded financial assets. II) It lies on the efficient frontier. III) All securities in the market portfolio are held in proportion to their market values

Which statement is true regarding the capital market line (CML)?I) The CML is the line from the risk-free rate through the market portfolio.II) The CML is the best attainable capital allocation line.III) The CML is also called the security market line.IV) The CML always has a positive slope. A.I only B.II only C.III only D.IV only E.I, II, and IV

I) The CML is the line from the risk-free rate through the market portfolio. II) The CML is the best attainable capital allocation line IV) The CML always has a positive slope.

Which statement is not true regarding the market portfolio? A.It includes all publicly traded financial assets. B.It lies on the efficient frontier. C.All securities in the market portfolio are held in proportion to their market values. D.It is the tangency point between the capital market line and the indifference curve. E.All of the options are true.

It is the tangency point between the capital market line and the indifference curve.

According to the Capital Asset Pricing Model (CAPM), the expected rate of return on any security is equal to

Rf + β [E(RM) - Rf].

In the context of the Capital Asset Pricing Model (CAPM) the relevant risk is

Systematic risk market risk

Which statement is not true regarding the capital market line (CML)? A.The CML is the line from the risk-free rate through the market portfolio. B.The CML is the best attainable capital allocation line. C.The CML is also called the security market line. D.The CML always has a positive slope. E.The risk measure for the CML is standard deviation.

The CML is also called the security market line.

In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is

beta

The market risk, beta, of a security is equal to

the covariance between the security's return and the market return divided by the variance of the market's returns

The security market line (SML) is

the line that represents the expected return-beta relationship

According to the Capital Asset Pricing Model (CAPM), fairly priced securities have

zero alphas