Question 1

The Capital Asset Pricing Model states that the expected return on a security depends on which of the following?

I. pure time value of money

II. amount of systematic risk as measured by beta

III. the reward for bearing systematic risk as measured by the market risk premium

IV. the reward for bearing risk as measured by the standard deviation

	a.	I, II, and III only
	b.	II and IV only
	c.	I, II, III, and IV
	d.	I and III only
	e.	II, III, and IV only

0.5 points

Question 2

Which of the following will increase the rate of return for a security that plots on the security market line?

I. increasing the risk-free rate of return

II. decreasing the beta of the security

III. increasing the market risk premium

IV. increasing the market risk-to-reward ratio

	a.	I and III only
	b.	I, III, and IV only
	c.	II and IV only
	d.	I, II, III, and IV
	e.	I, II, and III only