- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 63. Portfolio Risk and Return: Part II
- Subject 3. The Capital Asset Pricing Model
CFA Practice Question
Which of the following statements is incorrect concerning the CAPM?
A. It is intended to allow investors to calculate the realized rate of return on a security.
B. A diagram of the CAPM has beta on the horizontal axis.
C. The SML is the graphic depiction of the CAPM.
Explanation: The CAPM is intended to allow investors to calculate the required or appropriate expected rate of return on a security, not a realized rate of return. Realized returns are calculated, by definition, after the fact, while the CAPM is used before the fact.
User Contributed Comments 4
| User | Comment |
|---|---|
| EmmaBeale | Ummm - B is incorrect - the CAPM has Std Dev on the horz axis - help? |
| littlecow | EmmaBeale: it has beta on the x-axis. B is a correct statement. |
| joppy11 | I agree with the answer. B is a correct statement. |
| Albireo | EmmaBeale: CAPM has beta on the horizontal axis. Standard deviation is on the x-axis of the capital market line. |