Even companies with the same business risk may have different expected re-turn on equity, which would...

Even companies with the same business risk may have different expected re-turn on equity, which would however still be in agreement with predictions of the Capital Asset Pricing Model (True or False)?

Expert Solution

The given statement is FALSE because Capital Asset pricing model just accounts for systematic risk and it is represented through beta and if the company is having similar beta then it will be having similar expected rate of return because Capital Asset pricing model assumes that all the portfolio or completely diversified and only systematic risk is existing.

The given statement is FALSE.

jeff jeffy answered 2 years ago

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