Within the Capital Asset Pricing Model

question 109

Multiple Choice

Within the capital asset pricing model:

• A) the risk-free rate is usually higher than the return in the market.
• B) the higher the beta the lower the required rate of return.
• C) beta measures the volatility of an individual stock relative to a stock market index.
• D) beta is added to the market risk free rate.

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Definitions:

Debt-Equity Ratio

A ratio demonstrating the relative amounts of shareholders' equity versus debt financing in a corporation's asset base.

Fixed Assets

Tangible assets that are held by an entity for long-term use and are not expected to be converted into cash in the short term.

Plug Variable

A financial modeling technique where an unknown variable is calculated by ensuring that multiple financial statements are in balance, often used to solve for desired financing or investment levels.

Pro Forma Statement

A financial statement based on hypothetical assumptions or projections, often used in planning and decision-making processes to forecast future financial positions or results.