foundation

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

foundation

Postby anbu.edu » Tue Oct 08, 2013 5:28 am

Manoj says that Beta in CAPM has the following properties-
I. Beta varies between +3 and -3
II.Any security with a zero beta is risk-free
III.A negative beta might occur even when both the benchmark index and the stock under consideration have positive returns.
IV.Since beta is a result of regression of one stock against the market where it is quoted, betas from different countries are not comparabale.Which of the above do you think are true
Choose one answer.
a. II and IV Incorrect
b. II and III Incorrect
c. II, III and IV Correct
d. All of the given Incorrect
The correct answer is II, III, and IV.


Does zero beta necessarily mean risk free?

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

foundation

Postby pradeeppdy » Tue Oct 08, 2013 8:08 am

Yes If you put beta = 0 in CAPM formula,
Rf + β( Rm - Rf )
If you put 0 for beta
Rf + 0( Rm-Rf )
RF+ 0 = Rf


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