Capital Asset Pricing Model (CAPM)

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Capital Asset Pricing Model (CAPM) - Assessment

Assess your learning of CAPM, Systematic risk, and Market risk premium. Below quiz is compiled with open source MCQs available as student resources and questions framed by us. The idea is to make online learning interesting and productive.

After you press the Submit button, you can view your score, see correct answers, hints, and links to free online lectures. All the very best.

If the risk-free rate is 3%, the beta of American Express is 1.3, and the rate of return of the market portfolio is 11%, what is the expected return on American Express?

2 points

11.9%

13.8%

13.4%

14.1%

Clear selection

If a stock has an expected return of 20 percent, the risk-free rate is 12 percent, and the expected return on the market is 14 percent. What must its beta be?

2 points

Clear selection

Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent. According to the capital-asset pricing model (CAPM) and making use of the information above, the required return on Plaid Pants' common stock should be , and the required return on Acme's common stock should be

4 points

9.6 percent; 13.2 percent

9.0 percent; 18.0 percent

14.0 percent; 23.0 percent

3.6 percent; 7.2 percent

Clear selection

A stock has an expected return of 11 percent, the risk-free rate is 5.5 percent, and the market risk premium is 7.5 percent. What must the beta of this stock be?

2 points

0.55

0.64

0.73

0.83

Clear selection

In regression of capital asset pricing model, an intercept of excess returns is classified as

1 point

Sharpe's reward to variability ratio

Tenor's reward to volatility ratio

Jensen's Alpha

Tenor's variance to volatility ratio

Clear selection

According to the CAPM, the risk premium an investor expects to receive on any stock increases:

1 point

Directly with beta

Directly with unsystematic risk

Inversely with unsystematic risk

Inversely with beta

Clear selection

Suppose the risk-free rate is 10 percent. The expected return on the market is 18 percent. If a particular stock has a beta of 0.7, what is the expected return based on the CAPM?

2 points

12.5 %

16.5 %

15.6 %

18.6 %

Clear selection

The APT is an equilibrium model developed by:

1 point

Richard Roll

Stephen Ross

Harry Markowitz

Stephen Ross and Richard Roll

Clear selection

According to the capital asset pricing model, beta is a measure of:

1 point

Unsystematic risk

Systematic risk

Variance of returns

Standard deviation of returns

Clear selection

According to the CAPM, overpriced securities have:

1 point

Negative betas

Negative alphas

Zero betas

Positive alphas

Clear selection

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