Problem 2: CAPM Concepts (2 points) Are statements below true or false? Explain your answer.

a) (0.5 point) Assume that CAPM holds. Given that stocks A and B, which are traded in the same market, have the same expected return, their betas must be the same.

b) (0.5 point) Stocks A and B, which are traded in the same market, have the same beta. Given that Correlation(A,Market)>Correlation(B,Market), it must be the case that Standard deviation(A)

c) (0.5 point) Assume that CAPM holds. In January 2015 stock A had some expected return. In February 2015 risk-free rate increased compared to January 2015, but the expected market return and stock A beta stayed the same. It must be the case that the expected return on stock 1

A increased in February 2015 compared to its expected return in January 2015. d) (0.5 point) If the stock market consists of only 1 stock, that stock must have a beta of 1.