If you plotted the returns on a given stock against those of the market, and if you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be greater than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue into the future.

Question

Quizplus · Accepted Answer

If the slope of the regression line is negative, it means that the stock's returns move in the opposite direction of the market, indicating that the stock is a defensive stock. According to CAPM, the required rate of return on a stock is determined by its beta, and if the stock has a negative beta, the required rate of return will be lower than the risk-free rate. Therefore, the statement in the question is false.

If You Plotted the Returns on a Given Stock Against