Topic 10 The Standard Capital Asset Pricing Model.pdf

Expected return on the market expected return on the

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Expected return on the market. Expected return on the portfolio. Risk-free rate. Consider the following graph of the Security Market Line (SML). The letters X, Y, and Z represent risky asset portfolios. The SML crosses the y-axis at the point 0.07. The expected market return equals 13.0%. Note: The graph is NOT drawn to scale. Using the graph above and the information provided, which of the following statements is most accurate? Portfolio X's required return is greater than the market expected return. The expected return (or holding period return) for Portfolio Z equals 14.8%. The correct label for the x-axis is total risk. Portfolio Y is undervalued. Beta is least accurately described as: a measure of the sensitivity of a security's return to the market return. the factor by which the market risk premium is multiplied in the Capital Asset Pricing Model. a standardized measure of the total risk of a security. the covariance of a security's returns with the market return, divided by the variance of market returns.
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A) B) C) D) Question #49 of 50 Question ID: 438606 A) B) C) D) Question #50 of 50 Question ID: 438608 A) B) C) D) In the context of the CML, the market portfolio includes: the risk-free asset. 12-18 stocks needed to provide maximum diversification. risky stocks and bonds only. all existing risky assets. Consider the following graph of the risk-free asset R and the efficient frontier. The letters K, W, X Y, and Z represent risky portfolios. Portfolio M is the market portfolio. The lines R X and R Y represent the combination of the risk-free asset and the risky portfolio. Which of the following statements about the above graph is least accurate? Portfolios W and Z are perfectly positively correlated with each other. Investors on the capital market line to the right of M are leveraged and hold more than 100% of portfolio M. Portfolio K is possible, but not the most efficient because it does not fall on the efficient frontier and is overvalued. Point S represents the standard deviation of returns on the market portfolio. A portfolio to the right of the market portfolio on the capital market line (CML) is created by: holding more than 100% of the risky asset. fully diversifying. holding both the risk-free asset and the market portfolio. buying the risk-free asset. f f f
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