The following figure forms ten portfolios based on stocks' prior one-year performance and shows their returns and market betas. For example, the left-most portfolio invests in the past one-year loser stocks and rebalances each month. Likewise, the right-most portfolio invests in the past one-year winner stocks and rebalances each month. Which of the following statements regarding the capital asset pricing model (CAPM) is true? A The evidence supports the high risk-high return principle B Past one-year return is a priced factor CAPM consistently explains the return pattern D The risk premium for the market beta is positive Hint: Chapter 13. Assignment 2 Question 14 Portfolios Formed on Past One-Year Return 20.0 2.0 Plot Excess Return % 15.0 10.0 5.0 0.0 0.0 Low 2 3 4 5 6 7 8 9 High Past One-Year Return Excess Return % Market Beta 0.5 10 1.5 Market Beta