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Basic Question 5 of 11
A stock with a beta of 1.5 should have a ______ required rate of return than the market and a ______ required rate of return than a stock with a beta of 2.
B. higher; lower
C. lower; higher
A. lower; lower
B. higher; lower
C. lower; higher
User Contributed Comments 5
| User | Comment |
|---|---|
| tanyak | Does more volatile actually mean higher return? Do we assume that more volatility=higher returns? |
| accounting | yes |
| JVAC | more volatility->more risk->more expected return |
| hannovanwyk | the expected return they talking about here is the required return, LOS stated that its the same thing. hence, higher risk = higer required return to justify the risk taken. |
| bmeisner | You have to remember what the CAPM model assumptions are. Every investor expects the same return for a given level of risk, hence more risk means higher expected return. In real life this is not the case because everyone has different expectations and there is asymmetry of information. |
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Learning Outcome Statements
explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
calculate and interpret the expected return of an asset using the CAPM
CFA® 2025 Level I Curriculum, Volume 2, Module 2.