Beta is a measure of? Risk in a well diversified portfolio Systematic risk The extent to which the stocks return moves up and down with the market All of the avove
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- The Capital Asset Pricing Model (CAPM) says that the risk premium on a stock is equal to its beta times the market risk premium. ..... True FalseThe concept of Portfolio Effect indicates that the more assets added to the portfolio, the less risk of the total portfolio Select one: O True O False Ne Jump to... CHAPTER 5-STOCK VALUA1. Beta is positively related A. the degree of correlation between a stock's return and the market return B. the systematic risk of a stock C. risk premium required by the stock D. all of the above
- The additional return over the risk-free rate needed to compensate investors for assuming an average amount of risk. a. Market Risk Premium b. Risk-free rate С. Stock's beta O d. Security Market Line e. Required Return on StockAs additional securities are added to a portfolio, total risk will generally ________ at a _________ rate. Group of answer choices rise; decreasing rise; increasing fall; decreasing fall; increasingWhat should be the risk premium and return on a stock with a Beta of zerounder the Capital Asset Pricing Model (CAPM)? What about the risk premiumand return on a stock with a Beta of 1?
- 2) Since must be 1. The measures the stock's reactions to movements in the market, the beta for the market as a whole risk of this portfolio is well diversified. B) sigma; specific C) beta; systematic A) sigma; systematic D) beta; specificQuestion: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A to beta of B.2. In the capital asset pricing model, what does the stock beta stand for? (a) The volatility of the security (b) The joint volatility of any two securities in a portfolio (c) The relative co-movement of a security with respect to the market portfolio (d) The volatility of a security divided by the volatility of the market index
- What is a characteristic line? How is this line usedto estimate a stock’s beta coefficient? Write outand explain the formula that relates total risk,market risk, and diversifiable riskAs diversification increases, the firm-specific risk of a portfolio approaches A. 1. B. infinity. C. 0. D. (n – 1) × n.Is it possible to construct a portfolio of real-world stocks that has a required return equalto the risk-free rate? Explain.