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Homework answers / question archive / Copenhagen Business School FINANCE Corporate Quiz 2 1)Empirically, low beta stocks give a higher return than expected according to the CAPM and high beta stocks gives a lower return than expected according to the CAPM

Copenhagen Business School FINANCE Corporate Quiz 2 1)Empirically, low beta stocks give a higher return than expected according to the CAPM and high beta stocks gives a lower return than expected according to the CAPM

Finance

Copenhagen Business School

FINANCE Corporate

Quiz 2

1)Empirically, low beta stocks give a higher return than expected according to the CAPM and high beta stocks gives a lower return than expected according to the CAPM. This implies that empirically:

    • The security market line is more flat than what theory predicts.
    • The security market line is less flat than what theory predicts.
    • The empirical observation is not related to the shape of the security market line.
    • None of the above.

 

  1.  
     

    Consider the following returns of the market and a stock in various future scenarios.

Is the information in the table sufficient for calculating the stock beta?

    • No. We need information on the risk free rate.
    • No. We need information on the correlation coefficient.
    • No. We need information on the variance of the market return.
    • None of the above.

 

  1. What type of risk matters for an undiversified investor?
    • Market risk.
    • Idiosyncratic risk.
    • Default risk.
    • None of the above.

 

  1. Which of the following statements is true about an investment with a beta of 0?
    • The required return is equal to the risk free rate
    • The return of the investment is uncorrelated with the return on the market portfolio.
    • The investment has the lowest possible expected return.
    • None of the above.

 

  1. The capital market line (CML) describes the relationship between portfolio volatility and expected equilibrium return. Which of the following statements are true:
    • All portfolios on CML have the same Sharpe Ratio.
    • You can obtain any expected return on the CML by holding a portfolio which is a combination of the market portfolio and the risk free asset.
    • Any portfolio on CML will be equally desirable for a given investor.

 

    • None of the above.

 

 

 

 

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