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111

11.Which of the following best describes the capital asset pricing model?

A.Determines the amount of capital that is needed in particular situations

B.Is used to determine the price of futures contracts

C.Relates the return on an asset to the return on a stock index

D.Is used to determine the volatility of a stock index

A.Determines the amount of capital that is needed in particular situations

B.Is used to determine the price of futures contracts

C.Relates the return on an asset to the return on a stock index

D.Is used to determine the volatility of a stock index

Answer: C

CAPM relates the return on an asset to its beta. The parameter beta measures the sensitivity of the return on the asset to the return on the market. The latter is usually assumed to be the return on a stock index such as the S&P 500.

CAPM relates the return on an asset to its beta. The parameter beta measures the sensitivity of the return on the asset to the return on the market. The latter is usually assumed to be the return on a stock index such as the S&P 500.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015