The Straightforward Generalization of the Simple CAPM to International Stocks

question 33

Multiple Choice

The straightforward generalization of the simple CAPM to international stocks is problematic because

• A) inflation-risk perceptions by different investors in different countries will differ as consumption baskets differ.
• B) investors in different countries view exchange-rate risk from the perspective of different domestic currencies.
• C) taxes, transaction costs, and capital barriers across countries make it difficult for investors to hold a world-index portfolio.
• D) All of the options are correct.
• E) None of the options are correct.

---

Definitions:

Standard Deviation

A means to quantify the range of scattering or divergence in a dataset.

Normal Distribution

A bell-shaped probability distribution that is symmetrical about its mean, describing how variables are distributed, indicating that most of the observations cluster around the central peak and the probabilities for values further away from the mean taper off equally in both directions.

Continuous Uniform Probability Distribution

A type of probability distribution where all outcomes in a continuous range are equally likely.

Rectangular

Pertaining to a shape or object whose surface has four right angles and the opposite sides are parallel and equal in length.