Which one of these statements is correct?
A) Betas can be measured exactly.
B) If a stock has a very low beta, it is likely to have a high beta in the future.
C) The expected future risk premium is easy to accurately determine.
D) CAPM is widely used as a means of estimating expected returns.

Question

Quizplus · Accepted Answer

CAPM (Capital Asset Pricing Model) is widely used as a framework for estimating expected returns. However, options A, B, and C are incorrect. Betas are a measure of a stock's sensitivity to market movements but cannot be measured exactly. A low beta does not necessarily indicate a high beta in the future. The expected future risk premium is subject to uncertainty and difficult to accurately determine.

Which One of These Statements Is Correct