Answered: A criticism of the CAPM is that it: А.…

A criticism of the CAPM is that it: А. utilizes too many factors. В. ignores the risk-free return C. ignores the return on the market portfolio. D. requires a single measure of systematic risk.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter11: Risk-adjusted Expected Rates Of Return And The Dividends Valuation Approach

Section: Chapter Questions

Problem 5QE

See similar textbooks

Related questions

Q: Why will the standard deviation not be a good measure of risk when returns are negatively skewed

A: The standard deviation of returns is a measure of the volatility of market returns and determines…

Q: List which of the following statement(s) concerning risk are correct? I. Nondiversifiable risk is…

A: Risk is a factor which arises due to uncertain future factors. It can be generated through external…

Q: Explain the difference between systematic and unsystematic risk. Also explain why one of these types…

A: Financial markets are full of financial risks because these markets are related to the trade of…

Q: Which of the following risks can be eliminated through diversification? a. Systematic risk b.…

A: Idiosyncratic risk is a risk for a particular investment or company. It is also called unsystematic…

Q: Which is least likely? A. For the risk-seeking manager, no change in return would be required for…

A: Risk and return both are related to each other and depending upon the nature of managers or…

Q: Market risk cannot be eliminated. OA. True OB. False

A: The financial market can be defined as the market place which includes the trading of securities and…

Q: there is uncertainty about monetary outcome and you are concerned about return and risk, then all…

A: Yes agreed to that above statement that there is no need of entire data distribution but standard…

Q: What is efficient set? Explain why rational investors will never chose a portfolio below the minimum…

A: What is efficient set? Various configurations of securities yield various degrees of returns. The…

Q: If the security market is efficient in the strong form, then _____. Group of answer choices a. it…

A: There are three forms of market hypothesis weak form, semi-strong form and strong form

Q: What assumption about risk-adjusted techniques for measuring performance poses a potential problem?…

A: RISK ADJUSTED TECHNIQUES Investors want to look beyond performance when evaluating portfolios…

Q: What does a low standard error mean relative to beta

A: Beta is a very important metric in finance in general and in the world of investing in particular.…

Q: The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for…

A: Introduction : In simple words, capital asset pricing model or CAPM can be understood as a valuation…

Q: Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a…

A: CAPM: It is a model that shows the relationship between the systematic risk & expected return of…

Q: The slope of the security market line cannot be negative. Begin your answer with Consistent or…

A: Inconsistent. Capital Asset Pricing Model is used to determine the relationship between the expected…

Q: 1. a. Prove rigorously "Constant relative risk aversion CRRA implies decreasing absolute risk…

A: The Constant Relative Risk Aversion (CRRA) utility function is provided by W, where W signifies…

Q: If the assumptions underlying the CAPM hold, then an implication from the model is that: A)…

A: The CAPM shows the relationship between the Systematic risk and the return expected by the…

Q: Which of the following statements is TRUE about risk-free investment? a. Return in risk-free…

A: Risk free investment is an investment which gives low consistent returns and is a safe, secure…

Q: If we are speaking about the CAPM model and undiversifiable risks. Then what is meant by…

A: CAPM model The Capital asset pricing model (CAPM) refers to an idea that describes the systematic…

Q: Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific…

A: Answer 1. Market risk is referred to as? Market Risk: When an investor might lose money because of…

Q: What assumption about risk-adjusted techniques for measuring performance poses a potential problem?…

A: Uneven price change is the main problem in the Risk adjusted performance measurement. Options given…

Q: According to the CAPM, which of the following risks is irrelevant? Select one: a. Unsystematic…

A: CAPM stands for Capital Asset Pricing Model. This theoretical model shows the relationship between…

Q: The slope of the security market line cannot be negative. Begin your answer with Consistent or…

A: The slope of the security market line is inconsistent with the market changes.

Q: some true or false questions about the apt: a. the apt factors cannot reflect diversifiable risks.…

A: a) The Apt factors cannot reflect diversifiable risks. Arbitrage Pricing Theory states that assets’…

Q: If the weakest form of market efficiency holds, then security prices reflect all information found…

A: Technical analysis, which rely on past data to predict future stock price moves, would not be…

Q: When using the binomial model, you can't make decisions about investment using only the risk-neutral…

A: Risk-neutral probabilities are used to try to find an asset's or financial instrument's objective…

Q: Market risk is portion of a security's stand-alone risk that cannot be eliminated through…

A: Market risk is portion of a security's stand-alone risk is also called as systematic risk.It can not…

Q: A financial risk is not possible to evaluate with a. Standard deviatiom b. Mean value c.…

A: Financial risk refers to the possibility of losing money on an investment or business venture, which…

Q: Which of the following is not related to overall market variability. I am not satisfy give downvote…

A: Risk is uncertainty regarding the required objective which one wants to achieve and there are many…

Q: Risk means, in today's language, the probability of something bad happening or an unfortunate…

A: investors invest money in the market to earn some profit if they don't earn profit They will not…

Question

A criticism of the CAPM is that it:
А.
utilizes too many factors.
В.
ignores the risk-free return
C.
ignores the return on the market portfolio.
D.
requires a single measure of systematic risk.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Capital Asset Pricing Model

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

What assumption about risk-adjusted techniques for measuring performance poses a potential problem? A. Portfolio risk is constant over time B. Returns are normally distributed C. Mean reversion D. None of the options are correct.
List which of the following statement(s) concerning risk are correct? 1. Nondiversifiable risk is measured by beta. II. The risk premium increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are market risks you cannot avoid.
If we are speaking about the CAPM model and undiversifiable risks. Then what is meant by returns which are not captured by the market return.
Which of the following is not related to overall market variability. I am not satisfy give downvote A•Financial risk B•Interest rate risk C•Purchasing power risk D•Market risk
According to the CAPM, which of the following risks is irrelevant? Select one: a. Unsystematic risk b. Systematic risk c. All risks are always relevant d. Market risk
Market risk cannot be eliminated. OA. True OB. False
A financial risk is not possible to evaluate with a. Standard deviatiom b. Mean value c. Coefficient of variability d. Variability
If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True False
What does a low standard error mean relative to beta?A. Beta is a reliable measurement of risk B. Beta has very little meaning C. There is tremendous benefit to be gained from diversification D. Nothing related
Market risk is referred to as: systematic risk. total risk. diversifiable risk. asset specific risk. Standard deviation and beta both measure risk, but they are different in that beta measures both systematic and unsystematic risk. beta measures only systematic risk while standard deviation is a measure of total risk. beta measures only unsystematic risk while standard deviation is a measure of total risk. beta measures both systematic and unsystematic risk while standard deviation measures only systematic risk. beta measures total risk while standard deviation measures only nonsystematic risk. Buying common stock is riskier than buying a U.S Treasury bill. state reason in 'other' true False Other: Which one of the following statements is an example of unsystematic risk? The number of vehicles sold by a major manufacturer was less than anticipated. GDP was 0.5 percent lower than expected. The inflation rate increased by 5 percent. The value of the dollar declined against…
What is efficient set? Explain why rational investors will never chose a portfolio below the minimum variance point. Also show that this holds true regardless of whether risk averse investors would have different attitudes towards risk. Kindly answer this question
The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for an individual security. Which is the relevant risk variable and why is it relevant? Why is the other risk variable not relevant?