CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

Compared to the traditional Capital Asset Pricing Model (CAPM), where lending and borrowing are carried out at the risk-free rate, a zero-beta CAPM would most likely result in a security market line (SML) with ______.
A. unchanged slope
B. a steeper slope
C. a flatter slope
Explanation: Compared to the traditional CAPM, where lending and borrowing takes place at the risk-free rate, a zero-beta CAPM will result in a SML that has a flatter slope.

User Contributed Comments 5

User Comment
something What is zero beta? - I think AN should send an email for any comment on the subscribed ( commented) question.
ascruggs92 Zero beta means market neutral. beta the measure of correlation between the market and an individual asset, so having a beta of zero means that an asset's value is completely unrelated to movements in the market
lighty0770 Why is this flatter slope? If its a 0 beta then the slope is 0 and the SML stays at the Rf?
xe077 Can someone explain? Zero beta is same as risk free. correct?
joester25 Beta of zero has less return for a given level of risk. Therefore, the slope is flatter.
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