A Limitation of the CAPM Is the Assumption That ________

question 32

Multiple Choice

A limitation of the CAPM is the assumption that ________.

• A) there are multiple sources of systematic risk
• B) there is a single source of systematic risk
• C) investors have different assessments of expected returns and standard deviations
• D) they cannot borrow freely at the risk-free rate

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Definitions:

Materials Price Variance

The difference between the actual cost of raw materials and the standard cost expected to be paid, reflecting changes in price.

Raw Materials Price Variance

A measure of the difference between the actual cost of raw materials and the expected (standard) cost.

Labor Efficiency Variance

The difference between the budgeted and actual hours worked, multiplied by the standard labor rate, indicating efficiency in labor usage.

Variable Overhead Rate Variance

The difference between the actual variable overhead incurred and the expected (standard) variable overhead rate multiplied by the actual activity level.