According to the capital asset pricing model,which of the following stocks should have the highest required rate of return?
A) Beta Electronics because its standard deviation is highest.
B) Alpha Automobiles because its beta coefficient is highest.
C) Omega foods because the ration of standard deviation/beta is the lowest.
D) Not enough information is given to answer this question.

Question

According to the capital asset pricing model,which of the following stocks should have the highest required rate of return? 
A) Beta Electronics because its standard deviation is highest. 
B) Alpha Automobiles because its beta coefficient is highest. 
C) Omega foods because the ration of standard deviation/beta is the lowest. 
D) Not enough information is given to answer this question.

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) suggests that the required rate of return on a stock is a function of its beta coefficient. Beta measures the sensitivity of the stock's returns to changes in the overall market. Therefore, out of the given options, Alpha Automobiles, with the highest beta coefficient, should have the highest required rate of return. The standard deviation and the ratio of standard deviation/beta are not relevant in determining the required rate of return according to CAPM.

According to the Capital Asset Pricing Model,which of the Following