UAssume CAPM holds. We know expected return and beta of two stocks:Stock A: E[ra] = 10% and beta_a = 1.5Stock B: E[rb] = 5% and beta_b = 0.5What would be the expected return of a stock that has a beta of 0.9?O 6.5%Ⓒ7%O 7.5%O 6%Question 5Which of the following statements is false?o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investorsAccording to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset.According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks.According to CAPM, the expected return on a stock is a linear function of its beta.

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Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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Question

U
Assume CAPM holds. We know expected return and beta of two stocks:
Stock A: E[ra] = 10% and beta_a = 1.5
Stock B: E[rb] = 5% and beta_b = 0.5
What would be the expected return of a stock that has a beta of 0.9?
O 6.5%
Ⓒ7%
O 7.5%
O 6%
Question 5
Which of the following statements is false?
o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investors
According to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset.
According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks.
According to CAPM, the expected return on a stock is a linear function of its beta.

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