Which of the following statements about CAPM is true? a. The expected return of a zero-beta security or portfolio equals risk free rate. O b. The risk premium an investor expects to receive on any stock or portfolio increases with standard deviation. C. Beta measures total risk. d. On equilibrium, total risk is compensated by return. e. The beta of the market portfolio equals zero.
Which of the following statements about CAPM is true? a. The expected return of a zero-beta security or portfolio equals risk free rate. O b. The risk premium an investor expects to receive on any stock or portfolio increases with standard deviation. C. Beta measures total risk. d. On equilibrium, total risk is compensated by return. e. The beta of the market portfolio equals zero.
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
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Transcribed Image Text:Which of the following statements about CAPM is true?
a. The expected return of a zero-beta security or portfolio equals risk free rate.
b.
•The risk premium an investor expects to receive on any stock or portfolio increases with standard deviation.
C. Beta measures total risk.
On equilibrium, total risk is compensated by return.
e. The beta of the market portfolio equals zero.
Expert Solution
Step 1
CAPM is the capital asset pricing model.
As per CAPM expected return as follows:
Expected return = Risk free rate + (Beta *Market risk premium)
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