3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. ID00 There are no transaction costs. All assets are perfectly divisible and liquid. | All investors are price givers. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): Cov(ri, PM) ri = RF + CM - PRF) In this equation, the term Cov(ri, rm) / om represents the stock's beta coefficient Suppose that the market's average excess return on stocks is 10.00% and that the risk-free rate is 2.00%. Complete the following table by computing expected returns to stocks for each beta coefficient using the Capital Asset Pricing Model (CAPM): Return to Stocks (%) bi -0.50 0.30 1.00 3.00 Based on the CAPM and your calculations for the return to stocks, what does it mean when the coefficient b = 1? The stock is more volatile than the market. The stock's return correlates with the stock market as a whole. O The stock is less volatile than the market