Which of the following statements is NOT CORRECT? a. Investors expect higher ret

Question

Which of the following statements is NOT CORRECT?

a. Investors expect higher return by taking greater risk; here risk means market risk.

b. Any change in the beta is likely to affect the required rate of return on a stock, which implies that a change in beta will likely have an impact on the stock's price, other things held constant.

c. The capital Asset Pricing Model/SML dictates a positive relationship between risk and return.

d. The slope and intercept of this Security Market Line can be influenced by a manager's actions.

Explanation / Answer

Capital Assets pricing model is the method uses to determine required rate of return of an asset. This method uses, Risk free rate, market return and beta (a measure of market risk) to determine required rate of return on an asset. Market risk premium is calculated by market return and risk-free rate. Beta beta is measure of market risk, it mean it is not in control of manager of company. So, The slope and intercept of this Security Market Line can not be influenced by a manager's actions.

Option (D) is not correct.

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