WorksheetsFinance 2 - CAPM /Beta
Total questions: 7
Worksheet time: 5mins
What does beta measure in the context of the CAPM?
The total risk of a stock
The unsystematic risk of a stock
The sensitivity of a stock's returns to market returns
The risk-free rate
If a stock has a beta of 1.5, it means:
The stock has no risk
The stock is less volatile than the market
The stock is more volatile than the market
The stock has a higher risk-free rate
In the CAPM formula, what does (E(Rm) - Rf) represent?
The risk-free rate
The market return
The equity risk premium
The stock's beta
If an asset has a beta of 0, it implies:
The asset has no risk
The asset is risk-free
The asset has a higher risk-free rate
The asset's returns are not related to market returns
What is the expected beta of the market portfolio in the CAPM?
0
1
Less than 1
Greater than 1
A stock has a beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%. If the stock's actual return based on market price is 10%, what can be concluded about the stock?
It is undervalued because the actual return exceeds the CAPM-based return.
It is overvalued because the actual return exceeds the CAPM-based return.
It is fairly valued because the actual return equals the CAPM-based return.
It is overvalued because the CAPM-based return exceeds the actual return.
What does a stock's position above the SML indicate?
The stock offers a return lower than required for its risk level.
The stock offers a return higher than required for its risk level.
The stock is fairly priced in the market.
The stock's risk-free rate is too high.
