The fact that tests have shown the CAPM intercept to be greater than the RFR is consistent with a(n)
A) Zero beta model.
B) unstable beta or a higher borrowing rate.
C) Zero beta model or a higher borrowing rate.
D) higher borrowing rate.
E) unstable beta.

Question

Quizplus · Accepted Answer

The CAPM intercept being greater than the risk-free rate (RFR) suggests that the expected return on a zero-beta portfolio is higher than the RFR, which is consistent with the zero-beta model. Additionally, a higher borrowing rate could also cause the intercept to be greater than the RFR.

The Fact That Tests Have Shown the CAPM Intercept to Be