Indicate whether the following statements are true or false. a. Investors demand higher expected rates of return on stocks with more variable rates of return. multiple choice 1 True False b. The CAPM predicts that a security with a beta of 0 will offer a zero expected return. multiple choice 2 True False c. An investor who puts $10,000 in Treasury bills and $20,000 in the market portfolio will have a beta of 2.0. multiple choice 3 True False d. Investors demand higher expected rates of return from stocks with returns that are highly exposed to macroeconomic risks. multiple choice 4 True False e. Investors demand higher expected rates of return from stocks with returns that are very sensitive to fluctuations in the stock market.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Indicate whether the following statements are true or false.
a. Investors demand higher expected
multiple choice 1
-
True
-
False
b. The
multiple choice 2
-
True
-
False
c. An investor who puts $10,000 in Treasury bills and $20,000 in the market portfolio will have a beta of 2.0.
multiple choice 3
-
True
-
False
d. Investors demand higher expected rates of return from stocks with returns that are highly exposed to
multiple choice 4
-
True
-
False
e. Investors demand higher expected rates of return from stocks with returns that are very sensitive to fluctuations in the stock market.
multiple choice 5
-
True
-
False
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