Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.

Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 1P

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Similar questions

If Stock A has a lower expected return than Stock B, which of the following statements is least likely? Stock A has more specific risk. Stock B plots below the security market line. Stock A has a higher beta. Stock B is a cyclical stock.
Assume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? a. The required return on a stock with beta = 1.0 will not change. b. The required return on a stock with beta > 1.0 will increase. c. The return on "the market" will increase. d. The return on "the market" will remain constant. e. The required return on a stock with a positive beta < 1.0 will decline.
Given the beta is a relative measure of systematic risk, it is reasonable to assume that there exists a relationship between required rate of return and beta. The nature of this relationship is captured in: a. None of the above b. Security Market Line c. Stock Market Equilibrium d. Inflation Risk
Assume that the CAPM assumptions hold. Consider the following statements:i. A stock with a beta below zero will tend to move in the same direction as the market but will tend to move less aggressively in that direction than the market does.ii. Alpha measures the additional risk we take on top of the risk of the market portfolio.
A stock with a beta of zero would be expected to a. have a rate of return equal to one b. have a rate of return equal to the market rate c. have a rate of return equal to zero d. have a rate of return equal to the risk-free rate
A portfolio that is positively correlated with the market portfolio but not particularly sensitive to market risk factors would have a beta that is A. Equal to zero. B. Equal to one. C. Less than zero. D. Between 0 and 1. E. Greater than 1.
When working with the CAPM, which of the following factors can be determined with the most precision? a. The most appropriate risk-free rate, rRF. b. The market risk premium (RPM). c. The beta coefficient, bi, of a relatively safe stock. d. The expected rate of return on the market, rM. e. The beta coefficient of "the market," which is the same as the beta of an average stock.
1. Suppose stock A has a higher volatility than stock B. According to CAPM, which one is expected to deliver a higher return? A. A B. B C. The information provided is insufficient D. None of above is correct
Which of the following is INCORRECT? A. Anticipated returns on any given stock are always greater than 0. B. A negative beta stock has an expected return less than the risk-free rate. C. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). D. All a stock’s risk could be unsystematic.
When working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.
The SML shows the return needed given risk as measured by beta. And there are situations where a stock might be mispriced relative to CAPM. Given the relationship with the security mark line (SML), if a stock is properly priced relative to CAPM , where would it plot on the graph relative to the SML? A. on the Y-axis B. on the security market line C. below the security market line D. above the security market line
In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return