Single & Multi-factor Models True and False Questions:

1. If the beta of an asset is significantly different from zero, then the CAPM is a valid model of expected return (T/F)

2. Under the CAPM, the higher is the beta of an asset, the higher is its expected return (T/F)

3. In the CAPM, the assumption that the market return is uncorrelated with idiosyncratic risk is really an assumption that market risk is the only source of systematic risk (T/F)

4. The abnormal return of an asset is the return that cannot be explained by the CAPM adjustment for risk (T/F)

5. Under the CAPM, the alpha of an asset should be zero. If it is not zero, the CAPM does not hold (T/F)

6. We use multi-factor models in the hope of decreasing the influence of market risk on expected returns (T/F)