Reference no: EM133010430
Problem 1: Which of the following statements regarding the capital asset pricing model (CAPM) is NOT true?
A) Under the CAPM, beta captures an asset's exposure to firm-specific risk.
B) Under the CAPM, investors are compensated for bearing market risk.
C) Under the CAPM, a higher beta corresponds to a higher required rate of return.
D) Under the CAPM, beta determines the required return in excess of the risk-free rate.
Problem 2: Which of the following statements regarding diversified portfolios is NOT true?
A) The standard deviation of a portfolio's returns is the weighted average of the standard deviation of the assets in the portfolio.
B) The return on a portfolio is equal to the weighted average of the return of assets in the portfolio.
C) The extent to which a diversified portfolio reduces risk is greatest when assets in the portfolio have a low or negative correlation.
D) Most investors hold a portfolio of investments.