The study by Eugene Fama and Kenneth French found that

a. the CAPM model was a poor illustration of market risk.

b. there was no historical relationship between stock returns and their market betas.

c. that the CAPM is intuitive and highly reliable in determining risk.

d. risk can be efficiently diversified within a portfolio.

e. a beta score is effective in instilling confidence in investors.

Which of the following statements about risk and return is CORRECT?

a. Investors can significantly reduce risk by diversifying wisely.

b. High risk investments always yield higher returns.

c. Diversifying risk with a portfolio is only important to individual investors.

d. The risk of an investment has little to do with the length of time to maturity.

e. The higher the risk, the lower the return.

Which of the following is TRUE about stock beta?

a. An average risk stock will have a beta of 0.

b. A high beta score has a positive effect on a company's stock price.

c. Zero-risk securities have a beta of 1.

d. A beta of 1 or less signifies a high-risk stock.

e. A company's beta can change as a result of external factors such as patent expirations.

When a company is investing in riskier projects

a. the cost of obtaining capital goes down.

b. they appeal to a broader range of investors.

c. it allows them to pay lower yields on their bonds.

d. they must offer higher returns to their investors.

e. the cost of capital should exceed the return on the project.

Which of the following formulas is used to calculate the market risk premium (RPM)?

a. )

b.

c.

d.

e.

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