Based on the Capital Asset Pricing Model, Which One of the Following

question 61

Multiple Choice

Based on the capital asset pricing model, which one of the following must increase the expected return on an individual security, all else held constant?

• A)An increase in the risk level of that security as measured by standard deviation
• B)An increase in the risk-free rate given a security beta of 1.42
• C)A decrease in the market rate of return given a security beta of 1.13
• D)A decrease in the market rate of return given a security beta of .78
• E)A decrease in the risk-free rate given a security beta of 1.06

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Definitions:

Ledger

A book or collection of financial accounts in which transactions are recorded.

Journal

A chronological record of all financial transactions, used as the initial place of entry for such transactions in the accounting system.

Liabilities

Financial obligations or debts that a business owes to others, which must be settled over time through the transfer of economic benefits.

Capitals

Financial assets or the financial value of assets, such as cash and securities, owned by a business.