Study questions

Reducing the allocating the investments to multiple and varying assets.

• Diversification
• Computing the beta and alpha
• Gambling
• Active investing

If an active fund manager does better than CAPM predicts, this could indicate that the manager actually created value, something known as ____________.

• negative alpha
• alpha
• return on investment
• accounts payable turnover ratio

Beta effectively and accurately predicts the direction of the stock

• True
• False

Which of the following is the BEST definition of the security market line?

• The opposite of a risk-free rate.
• A security that is annualized.
• A variable that relies on the CAPM model.
• A visual depiction of an individual asset's expected return using CAPM.

____________ is a model that describes the relationship between risk and expected return and that is used in the pricing of securities.

• CAPM
• Beta
• Perpetuity
• Annuity

___________ measures how a particular security has historically co-varied with the overall market, usually measured by a broad-based stock index like the S&P 500 or Russell 20000.

• Revenue
• Future value
• Beta
• Present value

If you assume greater risk in an investment, you will always be compensated for it in terms of higher expected returns.

• True
• False