1.

Both the standard deviation and the CAPM beta measure risk, but they differ in that:

Select one:

a. the CAPM beta measures only the systematic risk while the standard deviation measures the total risk.

b. the CAPM beta measures only the idiosyncratic risk while the standard deviation measures the total risk.

c. the CAPM beta measures both the systematic and the non-systematic risk.

d. the CAPM beta measures total risk while the standard deviation measures only the systematic risk.

e. the CAPM beta measures total risk while the standard deviation measures only the idiosyncratic risk.

2.

Based on the latest available information, you expect that the price stock ABC with a CAPM beta of 0.9 will rise from $20 to $21.5 per share over the coming one year. The expected annual return of the stock market is 7% and the risk-free annual return is 1%. After comparing with the CAPM-implied expected return, should you invest in stock ABC?

Select one:

a. Yes, stock ABC is undervalued.

b. No, stock ABC is undervalued.

c. No, stock ABC is fairly priced.

d. Yes, stock ABC is overvalued.

e. No, stock ABC is overvalued.