According to the Capital Asset Pricing Model

question 233

Multiple Choice

According to the capital asset pricing model:

• A) There is an inverse relationship between risk and return.
• B) A stock which earns a higher rate of return than the market should have a beta which is greater than 1.0.
• C) An increase in the risk-free rate without a corresponding increase in the market rate of return indicates that the risk premium for a stock with a beta of.8 will increase.
• D) A stock with a beta of 1 will see its expected rate of return increase by 20% if its beta rises to 1.2, all else constant.
• E) A stock with a beta of 2.0 will see its return decline by 2% should the risk-free rate decline from 3% to 2%, all else constant.

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Definitions:

Recession

An economic downturn characterized by a decrease in GDP, employment, and trade activities, typically lasting for a period.

Expenditures

Expenditures refer to the act of spending money or incurring expenses, particularly by governments, businesses, or individuals.

Automatic Stabilizers

Strategies and initiatives aimed at stabilizing a country's economic fluctuations without further action from the government.

Economic Conditions

The state of an economy at a given time, including factors like inflation, unemployment, and GDP growth.