Topic 10 The Standard Capital Asset Pricing Model.pdf

Its accuracy depends upon the accuracy of the beta

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Its accuracy depends upon the accuracy of the beta estimates. It is when the security market line (SML) and capital market line (CML) converge. It is useful for determining an appropriate discount rate. It relies on the existence of a risk-free asset. The capital market line results from combining the efficient frontier with a risk-free asset. Given the availability of risky assets and a risk-free asset, the best combinations of risk and return are represented by: combinations of the market portfolio and minimum variance portfolio of risky assets. combinations of the minimum variance portfolio of risky assets and the risk-free asset.
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C) D) Question #18 of 50 Question ID: 438596 A) B) C) D) Question #19 of 50 Question ID: 438622 A) B) C) D) Question #20 of 50 Question ID: 438575 combinations of the market portfolio and risk-free borrowing or lending. the efficient frontier of risky assets. Which is NOT an assumption of capital market theory? There are no taxes or transaction costs. Investments are not divisible. There is no inflation. All investors have homogeneous expectations. A portfolio manager wants to purchase stocks with betas that are greater than the market beta. He has asked his analyst to evaluate two stocks, Stock X and Stock Y, and determine if their betas are greater than the market beta. The following information about Stocks X and Y is available to the analyst: Stock X Stock Y Standard deviation of returns 0.15 0.16 Covariance between the return on the market and: 0.014 0.021 The return on the market is 0.12 and the standard deviation of returns on the market is 0.13. Which of the stocks should the analyst recommend? Recommend X Recommend Y Yes No No No No Yes Yes Yes
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A) B) C) D) Question #21 of 50 Question ID: 438610 A) B) C) D) Question #22 of 50 Question ID: 438599 A) B) C) D) Question #23 of 50 Question ID: 438613 A) B) C) D) The expected rate of return is twice the 12% expected rate of return from the market. What is the beta if the risk-free rate is 6%? 2. 4. 5. 3. For an investor to move further up the Capital Market Line than the market portfolio, the investor must: diversify the portfolio even more. borrow and invest in the market portfolio. continue to invest only in common stocks. reduce the portfolio's risk below that of the market. Which of the following statements about asset pricing models is most accurate? It is difficult for the individual investor to achieve the benefits from diversification because significantly reducing risk requires the purchase of approximately 1,000 securities. According to the Capital Asset Pricing Model (CAPM), the expected rate of return of a portfolio with a beta of 1.0 is the market expected return. Assuming assets are not perfectly positively correlated, the systematic risk of a portfolio decreases as more assets are added. Adding the risk-free asset to a portfolio will reduce return and total risk.
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