According to the Capital Asset Pricing Model (CAPM),which one of the following statements is false?
A)The expected rate of return on a security increases in direct proportion to a decrease in the risk-free rate.
B)The expected rate of return on a security increases as its beta increases.
C)A fairly priced security has an alpha of zero.
D)In equilibrium, all securities lie on the security market line.
E)All of the above statements are true.

Question

Quizplus · Accepted Answer

According to CAPM, the expected rate of return on a security is positively related to its beta, and to the market risk premium. However, a decrease in the risk-free rate will decrease the expected rate of return on a security, not increase it. Therefore, statement A is false.

According to the Capital Asset Pricing Model (CAPM),which One of the Following