Question 9 [5 pts]

Determine whether each of the statements (a)(c) is True or False.

A) Underestimation of the market risk premium results in the underestimation of the cost of capital for a project and in turn increases the likelihood that a negative NPV project is falsely accepted.

B) The CAPM beta of a security measures the variability of the return of the security in isolation.

C) If an investor holds a well-diversified portfolio, the type of risk left in such a portfolio is primarily the idiosyncratic risk.

Answer:

a)

b)

c)