Question: Answer the following question about beta and CAPM and explain why. a. If the CAPM holds (market portfolio could be used to compute betas for

Answer the following question about beta and CAPM and explain why.

a. If the CAPM holds (market portfolio could be used to compute betas for specific projects/firms), it does not matter whether you invest in one stock or in a portfolio of stocks. All stocks are fairly priced (markets are efficient) and you will receive the appropriate compensation for the risks that you bear. True or false?

b. Suppose the CAPM holds. If two stocks have the same correlation with the market portfolio, then they must have the same beta. True or false?

c. Stock A has an expected return that is higher than the expected return on the market portfolio. Is this sentence consistent with the CAPM?

d. The optimal portfolio for an individual investor has a short position (i.e., a negative portfolio weight) in Stock D. Is this sentence consistent with the CAPM?

e. Stock E has a beta of 1.2 with the market portfolio. In a specific year, the market portfolio had a return of 17.9%. Stock E had a return of 14.1% over the same year. Is this sentence consistent with the CAPM?

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