In Developing the CAPM, the Relevant Measure of Risk for Each

question 19

Multiple Choice

In developing the CAPM, the relevant measure of risk for each security is its

• A) individual standard deviation.
• B) weight or proportion of the portfolio.
• C) correlation with each alternative security.
• D) covariance with the market portfolio.

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Definitions:

Validity

The degree to which an assessment accurately measures its purported content.

Reliability

The degree to which an assessment tool produces stable and consistent results.

Validity

The extent to which a test measures what it claims to measure.

Internal Consistency

A measure of reliability assessing the degree to which different test items that propose to measure the same general construct produce similar results.