#1
What does CAPM stand for?
Capital Asset Pricing Model
ExplanationModel for calculating expected return based on risk.
#2
Which risk is CAPM primarily concerned with?
Systematic risk
ExplanationMain focus of CAPM.
#3
What is the risk-free rate typically based on in CAPM?
The yield on Treasury bills
ExplanationSource of risk-free rate.
#4
Which Nobel laureate is credited with developing the CAPM?
William Sharpe
ExplanationContributor to CAPM.
#5
Which asset has a beta coefficient of 1.0 in CAPM?
Market portfolio
ExplanationAsset with specific beta.
#6
Which financial instrument often serves as a proxy for the risk-free rate in CAPM calculations?
Treasury bills
ExplanationCommon proxy for risk-free rate.
#7
According to CAPM, what is the expected return of an asset directly related to?
All of the above
ExplanationFactors impacting expected return.
#8
What does the beta coefficient measure in CAPM?
The volatility of the asset relative to the market
ExplanationMeasurement of asset's volatility.
#9
What is the formula for calculating the expected return of an asset using CAPM?
E(R) = Rf + β(Rm - Rf)
ExplanationFormula for expected return.
#10
In CAPM, what does the term (Rm - Rf) represent?
The market risk premium
ExplanationPremium for market risk.
#11
Which component of CAPM measures the sensitivity of an asset's returns to changes in the market?
Beta coefficient
ExplanationMeasurement of sensitivity.
#12
What is the mathematical relationship between beta coefficient and systematic risk in CAPM?
Directly proportional
ExplanationRelationship between beta and risk.
#13
Which of the following is NOT an assumption of CAPM?
Markets are always in equilibrium
ExplanationAssumptions of CAPM.
#14
What is the main limitation of CAPM in real-world applications?
It assumes a linear relationship between risk and return
ExplanationLimitation of CAPM.
#15
What does the security market line (SML) represent in CAPM?
The relationship between an asset's risk and expected return
ExplanationRepresentation of risk-return relationship.
#16
What assumption does CAPM make about investor behavior regarding risk?
Investors are indifferent to risk
ExplanationAssumption about investor attitude toward risk.