The Capital Asset Pricing Model

question 19

Multiple Choice

The capital asset pricing model

• A) provides a risk-return trade-off in which risk is measured in terms of the market volatility.
• B) provides a risk-return trade-off in which risk is measured in terms of beta.
• C) measures risk as the coefficient of variation between security and market rates of return.
• D) depicts the total risk of a security.

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Definitions:

Type I Error

The error that occurs when the null hypothesis is incorrectly rejected, falsely indicating a significant effect.

Type II Error

Occurs when a false null hypothesis is not rejected, meaning an effect or difference is missed in the analysis.

Null Hypothesis

A default hypothesis that there is no significant difference or effect, used as the basis for statistical testing.

Type I Error

The incorrect rejection of a true null hypothesis, often denoted as a false positive.