Expected required rates of return and beta

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Reference no: EM13826246

Which of the following is/are TRUE?

I. The security market line can be thought of as expressing relationships between expected required rates of return and beta.

II. The beta of the market portfolio is 1.

III. A stock with a beta of zero would be expected to have a rate of return equal to zero.

IV. On the capital market line (CML), any risk-return combination beyond the Market Portfolio (m) is obtained by borrowing money at risk-free rate and investing the borrowed amount at the tangency portfolio, m (i.e., market portfolio).

V. A firm's leveraged beta will always be greater than its unleveraged beta.

VI. The larger the amount of debt in a firm's capital structure, the greater will be the firm's leveraged beta.

Reference no: EM13826246

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