Exam 9: The Capital Asset Pricing Model

Which statement is true regarding the capital market line (CML) I. The CML is the line from the risk-free rate through the market portfolio. II. The CML is the best attainable capital allocation line. III. The CML is also called the security market line. IV. The CML always has a positive slope.

Capital asset pricing theory asserts that portfolio returns are best explained by

The capital asset pricing model assumes

The risk-free rate is 4%.The expected market rate of return is 11%.If you expect CAT with a beta of 1.0 to offer a rate of return of 10%, you should

You invest $200 in security A with a beta of 1.4 and $800 in security B with a beta of 0.3.The beta of the resulting portfolio is

As a financial analyst, you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4% and the expected market rate of return is 11%.Your company has a beta of 0.67 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM, the appropriate hurdle rate would be

A "fairly priced" asset lies

The risk premium on the market portfolio will be proportional to

Your opinion is that CSCO has an expected rate of return of 0.1375.It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115.According to the Capital Asset Pricing Model, this security is

The risk-free rate is 5%.The expected market rate of return is 11%.If you expect stock X with a beta of 2.1 to offer a rate of return of 15%, you should

Research by Jeremy Stein of MIT resolves the dispute over whether beta is a sufficient pricing factor by suggesting that managers should use beta to estimate

An overpriced security will plot

As a financial analyst, you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4% and the expected market rate of return is 11%.Your company has a beta of 1.4 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM, the appropriate hurdle rate would be

Assume that a security is fairly priced and has an expected rate of return of 0.13.The market expected rate of return is 0.13 and the risk-free rate is 0.04.The beta of the stock is

In the context of the Capital Asset Pricing Model (CAPM) the relevant measure of risk is

You invest 55% of your money in security A with a beta of 1.4 and the rest of your money in security B with a beta of 0.9.The beta of the resulting portfolio is

The expected return-beta relationship

Your opinion is that CSCO has an expected rate of return of 0.15.It has a beta of 1.3.The risk-free rate is 0.04 and the market expected rate of return is 0.115.According to the Capital Asset Pricing Model, this security is

As a financial analyst, you are tasked with evaluating a capital budgeting project.You were instructed to use the IRR method and you need to determine an appropriate hurdle rate.The risk-free rate is 4% and the expected market rate of return is 11%.Your company has a beta of 0.75 and the project that you are evaluating is considered to have risk equal to the average project that the company has accepted in the past.According to CAPM, the appropriate hurdle rate would be

Discuss the mutual fund theorem.