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Risk and Return

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Please help with the following problem.

Risk and Return. True or False? Explain or qualify as necessary.

a. Investors demand higher expected rates of return on stocks with more variable rates of return.

b. The capital asset pricing model predicts that a security with a beta of zero will provide an expected return of zero.

c. An investor who puts $10,000 in Treasury bills and $20,000 in the market portfolio will have a portfolio beta of 2.0

d. Investors demand higher expected rates of return from stocks with returns that are highly exposed to macroeonomic changes.

e. Investors demand higher expected rates of return from stocks with returns that are very sensitive to fluctuations in the stock market.

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Solution Summary

This solution is comprised of a detailed explanation to answer whether the statement about risk and return is true or false.

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a. False.
More variable rates of return does not necessarily imply more rates of returns. The return rate is the weighted sum of these variable rates.

b. False.
Zero-Beta ...

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