Chapter 2: Q19I. (page 226)
If the simple CAPM is valid, which of the situations in Problems 13 – 19 below are possible? Explain. Consider each situation independently.
The correct answer would be: “Possible”
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%.
Company | \(1 Discount Store | Everything \)5 |
Forecast return | 12% | 11% |
Standard deviation of returns | 8% | 10% |
Beta | 1.5 | 1.0 |
What would be the fair return for each company, according to the capital asset pricing model (CAPM)?
If the simple CAPM is valid, which of the situations in Problems 13 – 19 below are possible? Explain. Consider each situation independently.
Which of the following statements about the standard deviation is/are true? A standard deviation:
a. Is the square root of the variance.
b. Is denominated in the same units as the original data.
c. Can be a positive or a negative number.
What is the expected rate of return for a stock that has a beta of 1 if the expected return on the market is 15%?
a. 15%.
b. More than 15%.
c. Cannot be determined without the risk-free rate.
If prices are as likely to increase as decrease, why do investors earn positive returns from the market on average?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
