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True false questions about CAPM

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Are the following statements true or false?

(a) Stocks with a beta of zero offer an expected rate of return of zero.

(b) The CAPM implies that investors require a higher return to hold highly volatile securities.

(c) You can construct a portfolio with a beta of 0.75 by investing 0.75 of the investment budget in bills and the remainder in the market portfolio.

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Solution Summary

The Solution provides a short explanation of why each answer is true or false for the CAPM questions.

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(a) This is False. β = 0 implies E(r) = rf , not zero.

(b) This is ...

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