Expected market return increases

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Problem 1: True or False 

Are the following statements true or false? Please briefly explain your answer. A correct answer without an explanation is worth 0 points. A correct answer with an incorrect explanation can also be worth 0 points depending on how incorrect the explanation is.

a) There are 2 stocks: A and B. Stock B has a smaller standard deviation than stock A. Statement: The variance of a portfolio of stocks A and B must be at least as high as the variance of stock B.

b) CAPM holds. Statement: If the expected market return increases, but stock A beta and risk-free rate stay constant, then the expected return on stock A must increase.

c) CAPM holds. Statement: If the expected market return increases and stock Abeta increases, but the risk-free rate stays constant, then the expected return on stock A must increase.

Reference no: EM133110387

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