Answered: True or False. and briefly explain. a.…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 4P

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True or False. and briefly explain.

a. Under the Capital Asset Pricing Model (CAPM), if a stock has a zero beta, then it must be identical to the riskfree asset.

b. For Value at Risk (VaR) to be useful, the returns have to be normally distributed.

c.If the borrowing rate is higher than the lending rate, a particular risk-averse investor can achieve a maximized utility score of U_C_* by choosing optimally. Now if the borrowing rate is equal to the lending rate, this investor must be able to achieve a utility score higher than U_C_*

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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