Question
In: Finance
According to the CAPM the market does not need to pay for riskthat could have...
According to the CAPM the market does not need to pay for risk that could have been diversified away. True or False?
Solutions
Expert Solution
ANSWER - TRUE
This pricing model describes the relationship between Systematic risk(Undiversifiable risk) and expected return on the stock. Even you try to diversify all the risk but still there will be some risk which cannot be diversified. So, the market only pays for the risk which cannot be diversified.
Formula of CAPM- Expected return = Risk free rate +
(Beta*(Market return - Risk free rate))
so the above statment is true
jeff jeffy answered 2 years agoRelated Solutions
1a) According to the CAPM, the market portfolio should be the portfolio with the highest Sharpe...
1a) According to the CAPM, the market portfolio should be the
portfolio with the highest Sharpe ratio. Explain in fewer than five
sentences
1b) Suppose you are an asset manager who is designing an optimal
portfolio for your client. Explain each of the following questions
in fewer than five sentences.
i) What are the three steps in selecting the optimal
portfolio?
ii) Now suppose the CAPM holds. How will your optimal portfolio
selection change?.
According to the CAPM, which of the following is false regarding the market portfolio? All securities...
According to the CAPM, which of the following is false
regarding the market portfolio?
All securities in the market portfolio are held in proportion to
their market values.
It includes all risky assets in the world.
It is always the minimum-variance portfolio on the efficient
frontier.
It lies on the efficient frontier.
None of the above.
Which of the following statements about correlation is
least accurate?
If the correlation coefficient is 0, a zero-variance portfolio
can be constructed.
Diversification reduces...
According to the capital asset pricing model (CAPM) the only risk that matters is “market risk”,...
According to the capital asset pricing model (CAPM) the only
risk that matters is “market risk”, captured by beta (β). What type
of risk is this and what does it entail? Why are all other types of
risk less important? Do you agree with the CAPM view on risk or
not?
According to the capital asset pricing model (CAPM) the only risk that matters is “market risk”,...
According to the capital asset pricing model (CAPM) the only
risk that matters is “market risk”, captured by beta (β). What type
of risk is this and what does it entail? Why are all other types of
risk less important? Do you agree with the CAPM view on risk or
not?
what does an organization need to do if they have 27 bi-weekly pay periods in the...
what does an organization need to do if they have 27 bi-weekly pay
periods in the year?
Accounting and Finance: According to the Capital Asset Pricing Model (CAPM), investors will have to face...
Accounting and Finance:
According to the Capital Asset Pricing Model (CAPM), investors
will have to face “diversified risk” and “non-diversifiable
risk”.
Distinguish between the two.
According to the Capital Asset Pricing Model (CAPM), investors will have to face “diversified risk” and...
According to the Capital Asset Pricing Model (CAPM), investors
will have to face “diversified risk” and “non-diversifiable risk”.
Distinguish between the two.
What tow characteristics does a market structure need to have for firms in that industry to...
What tow characteristics does a market structure need to have
for firms in that industry to engage in technological advance? What
market structure best meets these criteria?
According to the CAPM, a stock is twice as risky as the market portfolio The expected return of the market portfolio is 12 and the risk free rate is 6
Accordingto the CAPM, a stock is twice as risky as the market portfolio Theexpected return of the market portfolio is 12 and the risk free rate is 6 Thestock’s price is currently 10 An analyst predicts that the price will be 11 in oneyear According to the analyst, where does this stock plot relative to the SML? Ifthe analyst’s forecast is correct, then by what percentage would the stock’s pricehave to change today in order for it to plot on...
According to CAPM Beta can have many definitions. Please mark the only CORRECT one: a. If...
According to CAPM Beta can have many definitions. Please mark
the only CORRECT one:
a.
If the covariance between stock B and the market is 200 and the
volatility of the market index is 20%, then B’s Beta will be
0.5
b.
The higher the covariance between stock A and the market, the
lower its Beta
c.
Beta measures the volatility of the stock
d.
Given a collection of 10 stocks, the one with the highest
covariance with the market...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Discuss the four evolving company orientations. Which orientation is considered most successful and why?
- Flexible Budgeting and Variance Analysis I Love My Chocolate Company makes dark chocolate and light chocolate....
- this should be written in Java- Problem: Min/Max Search by Index Develop a program that, given...
- 2.the stock of Business Adventures sells for $70 a share. Its likely dividend payout and end-of-year...
- Provide TWO specific strategies that an equipment designer could employ to reduce heating of the temperature-sensitive...
- For fatty acid synthesis what would be the substrate if you are making an even number...
- Write a javascript program that computes the total cost for a five year car lease. The...
ADVERTISEMENT