Assume that the assumptions underlying the standard CAPM hold. Indicate whether
ID: 2647821 • Letter: A
Question
Assume that the assumptions underlying the standard CAPM hold. Indicate whether each of the following statements is True or False
a. A firm with a high variance will have a higher beta than a firm with a low variance.
b. A portfolio is efficient if it has no unsystematic risk.
c. A firm that is highly correlated with the market will have a higher beta than a firm that is less
correlated.
d. If the variance of the market portfolio goes up, the betas of all securities will go down.
Explanation / Answer
A) True a firm with higher variance will always have a higher beta as compared to the firm with lower variance
B) A portfolio is efficent if it has no systematic risk because unsystematic risk is out of control of the investor and it is uncertain
C) A firm that is highly correlate to the market will have a higher beta as compared to the firm that is less correlated
D_) False Beta and variance are directly proportion and variance of portfolio goes up this does not mean that the beta of all securities will go down