Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
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Assume CAPM holds. We know expected return and beta of two stocks:
Stock A: E[ra] = 10% and beta_a = 1.5
Stock B: E[rb] = 5% and beta_b = 0.5
What would be the expected return of a stock that has a beta of 0.9?
O 6.5%
Ⓒ7%
O 7.5%
O 6%
Question 5
Which of the following statements is false?
o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investors
According to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset.
According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks.
According to CAPM, the expected return on a stock is a linear function of its beta.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0cb455f1-4939-452e-ab1d-001eaa401fe3%2Fd9f33c0f-cae1-47bd-8caa-bb190c498e5b%2Fid6cww_processed.jpeg&w=3840&q=75)
Transcribed Image Text:U
Assume CAPM holds. We know expected return and beta of two stocks:
Stock A: E[ra] = 10% and beta_a = 1.5
Stock B: E[rb] = 5% and beta_b = 0.5
What would be the expected return of a stock that has a beta of 0.9?
O 6.5%
Ⓒ7%
O 7.5%
O 6%
Question 5
Which of the following statements is false?
o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investors
According to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset.
According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks.
According to CAPM, the expected return on a stock is a linear function of its beta.
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