Assume the CAPM Is the Correct Asset Pricing Model $-0.200$

question 25

Multiple Choice

Assume the CAPM is the correct asset pricing model.An asset has a standard deviation of 30% and the market has a standard deviation of 20%.What would the correlation of the asset with the market need to be if the asset were to have the same expected return as the risk-free asset?

• A) \( -0.200 \)
• B) \( 0.000 \)
• C) \( 0.200 \)
• D) \( 0.300 \)

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Definitions:

95-Day Note

A financial instrument specifying repayment of a loan or debt within 95 days.

5-Month Note

A short-term financial instrument that matures or is due for payment in five months.

Calculating Interest

The process of determining the cost of borrowing money or the earnings from lending money, based on the principal amount, rate, and time period.