Asked by Krystina Colon on May 20, 2024
Verified
If a stock return is expected to be the same as the expected return on the market, the stock's CAPM beta is ____.
A) 0.0
B) 0.5
C) 1.0
D) undefined
CAPM Beta
CAPM Beta is a measure used in the Capital Asset Pricing Model to determine the volatility or systemic risk of an asset in relation to the market as a whole.
Expected Return
Expected return is the predicted amount of profit or loss an investment is anticipated to generate over a specific period.
- Acquire knowledge about the Capital Asset Pricing Model (CAPM) and its integral components.
Verified Answer
AI
Aronne IbarraMay 25, 2024
Final Answer :
C
Explanation :
A stock's CAPM beta measures its systematic or market risk. If the stock's expected return is the same as the expected return on the market, then its systematic risk is the same as the market, which has a beta of 1. Therefore, the stock's CAPM beta should also be 1.
Learning Objectives
- Acquire knowledge about the Capital Asset Pricing Model (CAPM) and its integral components.