CFA Practice Question

CFA Practice Question

The average return on a portfolio different from that predicted by the Capital Asset Pricing Model (CAPM) is measured by:
A. reward to non-systematic risk.
B. alpha.
C. beta.
Explanation: The difference between the expected and required return is called the alpha (a) or excess rate of return.

User Contributed Comments 4

User Comment
zAlan7 Can you explain what it is not reward to non-systematic risk?
danlan There is no reward to non-systematic risk. There is only reward to systematic risk.
Carol1 Beta means systematic return, however the Abonormal return is a residual caused by unsystematic risk or other factor (doesn't suppose exist-non rewarded)
thekobe remember when ploting some points above or beyond the CML, points above are positive alphas and indicate overvaluation, points below are negative alphas and indicate undervaluation
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