According to the CAPM, would the expected rate of return on a security with a beta less

Question:

According to the CAPM, would the expected rate of return on a security with a beta less than zero be more or less than the risk-free interest rate? Why would investors invest in such a security?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Fundamentals of Corporate Finance

ISBN: 978-1259722615

9th edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus

See More Books

Question Posted: Jun 24, 2017 08:58 AM

See More Questions

In Problem 10.16, we projected financial statements for Wal-Mart Stores, Inc. (Walmart) for Years +1 through +5. The data in Chapter 12s Exhibits 12.16, 12.17, and 12.18 include the actual amounts...
In Problem 10.16, we projected financial statements for Walmart Stores for Years +1 through +5. The data in Chapter 12 Exhibits 12.17-12.19 include the actual amounts for 2012 and the projected...
In Integrative Case 10.1, we projected financial statements for Starbucks for Years +1 through +5. In this portion of the Starbucks Integrative Case, we use the projected financial statements from...
If A and B are mutually exclusive events and P(A) = 0.2 and P(B) = 0.7, then P(A and B) is?
For the in-line blending system of Example 18.9, draw block diagrams for two multiloop control schemes: (a) The standard scheme for x 0.4. (b) The less interacting scheme where u1 WA + wB and U2 =...
Using Exhibit 2-2 and case examples from some research companys website, discover if favored-technique approaches to research design dominate a firms activities. Exhibit 2-2 Exploration Clarify the...
Determine whether each experiment is a binomial experiment. If it is, specify the values of n, p, and q, and list the possible values of the random variable x. If it is not, explain why. 1. A certain...
1. What should Andy Gibson have done differently in his meeting with Jacob Clemson in Jacobs office? 2. What are some things Andy could have done differently from his initial contact with Mr. Clemson...
Glamly uses a normal costing system and applies manufacturing overhead to jobs at a rate of 110% of direct labor costs. The company had no beginning or ending raw materials or work-in-process...
The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are bonds adjusted for inflation; hence the yields can be roughly interpreted as real interest rates. Go...
In view of your answer to Problem 25, explain why a mutual fund must be able to provide an expected rate of return in excess of that predicted by the security market line for investors to consider...
The total market value of the equity of Okefenokee Condos is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and that...
Suppose you have an endothermic reaction with K eq approximately equal to 1 10 3 . How could you adjust the temperature of this reaction to drive it to completion? Explain your answer.
3) The first quantum mechanical models that was studied was the behavior of an electron in a 1-D box, referred to as Particle in a Box (or Particle on a Wire). a) Which one of the figures below lets...
2 7. Find the eigenvalues and corresponding eigenvectors of A = 2 -3 3 Show your work. 8. Find a nonsingular matrix P such that P-1AP is diagonal where A Bonus (10 points) Find an orthogonal matrix P...
Construct an influence graph that shows that Tom influences Patricia, Tom influences Hope, Sandy influences Tom, Patricia influences Hope, Hope influences Sandy, Tom influences Amy, Marika influences...
Answer a and b GTO Incorporated is considering an investment costing $397,150 that results in net cash flows of $50,000 annually for 12 years. (PV of $1. EV of $1. PVA of $1, and EVA of $1) (Use...
What makes an act wrong?
A compact neutron star has a mass of 2.8 x 10 30 kg (about 1.4 times the mass of the Sun) but a radius of only 10 4 m (approximately 6.2 mi!). If a clock on the surface of this exotic star marks the...
A researcher reports a significant two-way between-subjects ANOVA, F(3, 40) = 2.96. State the decision to retain or reject the null hypothesis for this test.
A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5%. A-rated bonds sell at yields of 7.8%. Suppose that a 10-year bond with a...
Suppose interest rates increase from 8% to 9%. Which bond will suffer the greater percentage decline in price: a 30-year bond paying annual coupons of 8% or a 30-year zero-coupon bond?
Look again at the previous question. Can you explain intuitively why the zero exhibits greater interest rate risk even though it has the same maturity as the coupon bond?
AA stock price is $45/share. The stock is expected to pay dividends $2.50 in the coming year. After reviewing all information, you concluded: the price one year from now will be $50/share and you...
Fung is planning for the correct after tax and after inflation real rate of return to use. If inflation will be 1.3%, the average rate of return on his investments will be 4.9%, and the tax rate on...
In a three - level marketing channel, how many entities ( organization / individual ) are connected?

According to the CAPM, would the expected rate of return on a security with a beta less

Question:

Step by Step Answer:

To conclude we can say that a security with a ...View the full answer

Fundamentals of Corporate Finance

Students also viewed these Corporate Finance questions