- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 2. Portfolio Risk and Return: Part II
- Subject 5. The Capital Asset Pricing Model
CFA Practice Question
A stock with a beta of 1.5 should have a ______ required rate of return than the market and a ______ required rate of return than a stock with a beta of 2.
B. higher; lower
C. lower; higher
A. lower; lower
B. higher; lower
C. lower; higher
Correct Answer: B
User Contributed Comments 5
| User | Comment |
|---|---|
| tanyak | Does more volatile actually mean higher return? Do we assume that more volatility=higher returns? |
| accounting | yes |
| JVAC | more volatility->more risk->more expected return |
| hannovanwyk | the expected return they talking about here is the required return, LOS stated that its the same thing. hence, higher risk = higer required return to justify the risk taken. |
| bmeisner | You have to remember what the CAPM model assumptions are. Every investor expects the same return for a given level of risk, hence more risk means higher expected return. In real life this is not the case because everyone has different expectations and there is asymmetry of information. |