4. The relationship of required rate of return and risk shows the linearity in the: a. Security market line b. Capital market line C. None of these d. Asset market line
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- The difference between the market rate and the risk-free rate is the Blank______. Multiple choice question. premium on risk-free rate risk-free return market risk premium market risk returnWhich of the following is the correct equation of the capital asset pricing model (CAPM)? (E(Ri) denotes the expected return on a security, Rf denotes the risk-free rate, [E(RM) − Rf] denotes the market risk premium, and βi denotes the amount of systematic risk present in the security.) Multiple choice question. E(Ri) = Rf + [E(RM) – Rf] × βi E(Ri) = Rf – [E(RM) + Rf] × βi E(Ri) = Rf – [E(RM) – Rf] × βi E(Ri) = Rf + [Rf− E(RM)] × βiA change in the risk premium, E(Rm) - Rf, results in... Group of answer choices 1. A change in the vertical intercept of the Security Market Line (SML) 2. No change in the return/beta relationship. 3. A change in the horizontal intercept of the Security Market Line (SML) 4. A change in the slope of the Security Market Line (SML)
- A change in the risk premium, E(Rm) - Rf, results in... a) A change in the vertical intercept of the Security Market Line (SML) b) No change in the return/beta relationship. c)A change in the horizontal intercept of the Security Market Line (SML) d)A change in the slope of the Security Market Line (SML)The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; VolatilityChanging the market risk premium A. Changes neither the y-intercept nor the slope of the security market line B. Changes only the y-intercept of the security market line C. Changes only the slope of the security market line D. Changes both the y-intercept and the slope of the security market line
- Define the real risk-free rate (r*). What security canbe used as an estimate of r*? What is the nominalrisk-free rate (rRF)? What securities can be used asestimates of rRF?The capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?