What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk

What does the capital asset pricing model (CAPM) calculate? a. The expected rate of return on an individual stock with respect to the risk-free rate of return b. The expected rate of return of an individual stock based on its overall risk c. The expected rate of return of an individual stock with respect to its market risk only d. The expected rate of return of an individual stock reflecting its financial risk

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 1Q

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What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
i) Calculate the expected return for each stock assuming the Capital Asset Pricing Model (CAPM) is valid, and explain if they are correctly priced. Show your calculations.
Differentiate between the terms expected rate of return, required rate of return, and historical rate of return as they are applied to common stocks
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What is relationship between the market risk of a stock and it's expected return?
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: What is risk and how is it measured? How is risk measured in a portfolio compared to risk in a stand-alone stock? How do you measure the relevant risk in a portfolio?
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What does standard deviation measure? A. The holding period B. The gain on the investment C. Risk D. The amount of dividend #####################
. According to the Capital Asset Pricing Model,what measures the amount of risk that an individual stock contributes to a well-diversified portfolio? Define this measurement.