Both the CAPM and APT Suggest That an Asset Should

question 38

Multiple Choice

Both the CAPM and APT suggest that an asset should be priced so that it has a higher expected return

• A)when it has a greater systematic risk.
• B)when it has a greater risk in isolation.
• C)when it has a lower systematic risk.
• D)when it has a lower systematic risk and a lower risk in isolation.

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Definitions:

Environment

The environment or circumstances in which a person, animal, or plant exists or functions.

Identical Twins

Twins who develop from a single fertilized egg that splits in two, creating two genetically identical organisms.

Fraternal Twins

Twins who develop from separate fertilized eggs. They are genetically no closer than brothers and sisters, but they share a fetal environment.

Neuroticism

A personality trait characterized by moodiness, anxiety, and emotional instability.