Adequate Information: All securities are fairly priced. To construct: Whether all securities offer equal expected rates of return . Introduction: CAPM or Capital Asset Pricing Model defines the expected rates of return on a security as a sum of rate of return on a risk-free asset and Market risk premium multiplied by beta (Market Risk). Beta is a measure of security's market risk and is calculated by measuring security price change relative to stock market. This indicates price sensitivity of a security to market risk.

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Chapter 11, Problem 3PS

Summary Introduction

Adequate Information:

All securities are fairly priced.

To construct:

Whether all securities offer equal expected rates of return.

Introduction:

CAPM or Capital Asset PricingModel defines the expected rates of return on a security as a sum of rate of return on a risk-free asset and Market risk premium multiplied by beta (Market Risk).

Betais a measure of security's market risk and is calculated by measuring security price change relative to stock market. This indicates price sensitivity of a security to market risk.

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