Use the Information for the Question(s)below

question 1

Multiple Choice

Use the information for the question(s) below.
Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market.
-Which of the following statements is FALSE?

• A)The risk premium of a security is equal to the market risk premium (the amount by which the market's expected return exceeds the risk-free rate),divided by the amount of market risk present in the security's returns measured by its beta with the market.
• B)We refer to the beta of a security with the market portfolio simply as the securities beta.
• C)There is a linear relationship between a stock's beta and its expected return.
• D)A security with a negative beta has a negative correlation with the market,which means that this security tends to perform well when the rest of the market is doing poorly.

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