question archive When working with the CAPM, which of the following factors can be determined with the most precision? a
When working with the CAPM, which of the following factors can be determined with the most precision? a
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When working with the CAPM, which of the following factors can be determined with the most precision?
a. The expected rate of return on the market, rM.
b. The market risk premium (RPM).
c. The most appropriate risk-free rate, rRF.
d. The beta coefficient of "the market," which is the same as the beta of an average stock.
e. The beta coefficient, bi, of a relatively safe stock.
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Answer:
d. The beta coefficient of "the market," which is the same as the beta of an average stock.
Step-by-step explanation
When working with the CAPM, The beta coefficient of "the market," which is the same as the beta of an average stock can be determined with the most precision.
Beta is a measure of Risk. It measure the change in security with respect to change in market which means how much stock price increases or decreases with increase/decrease in market.
For example, If Beta is 1.2, it means if market increases by 10%, stock would increase by 12% and vice-versa.
If beta is 1, it means both given stock and market changes equally.Therefore, The beta coefficient of "the market," which is the same as the beta of an average stock can be determined with the most precision.
