Which of the following statements is FALSE?
A)The CAPM remains the predominant model used in practice to determine the equity cost of capital.
B)Low beta stocks have tended to perform somewhat better than the CAPM predicts.
C)The empirically estimated security market line is somewhat steeper than that predicted by the CAPM.
D)Some evidence suggests that the market risk premium has declined over time.

Question

Quizplus · Accepted Answer

The empirical evidence suggests that the security market line is flatter than the one predicted by the CAPM. This means that the required return on a security is less sensitive to changes in market risk than the CAPM suggests. This is known as the empirical beta puzzle. Therefore, statement C is false.

Which of the Following Statements Is FALSE