Question

What does the Capital Asset Pricing Model (CAPM) express regarding the expected return on any bundle of assets or cash flows?

a.

E(R) = Rt + B [E (Rm) - Rf]

b.

E(R) = Rf + B [E (Rm) - Rt]

c.

E(R) = B [E (Rm) - Rf] + Rt

d.

E(R) = B [Rf - E (Rm)] + Rt

Posted under IC 89 Management Accounting

Answer: (a).E(R) = Rt + B [E (Rm) - Rf] Explanation:According to the Capital Asset Pricing Model (CAPM), the expected return on any bundle of assets or cash flows can be expressed as E(R) = Rt + B [E (Rm) - Rf], where Rt is the risk-free rate, E (Rm) is the return on the market portfolio, and B is the covariance of returns on the assets or cash flows with the return on the market portfolio.

Interact with the Community - Share Your Thoughts

Uncertain About the Answer? Seek Clarification Here.

Understand the Explanation? Include it Here.

Q. What does the Capital Asset Pricing Model (CAPM) express regarding the expected return on any bundle of assets or cash flows?
Add Comment

Similar Questions

Explore Relevant Multiple Choice Questions (MCQs)

Q. What does the Internal Rate of Return (IRR) on a project represent?

View solution

Q. What is the primary advantage of using the IRR as a criterion for project selection and performance evaluation?

View solution

Q. How is the Internal Rate of Return (IRR) calculated?

View solution

Q. What is the purpose of comparing the Internal Rate of Return (IRR) to a hurdle rate?

View solution

Q. What is a limitation of the Internal Rate of Return (IRR) when comparing two or more projects to select the best one?

View solution

Q. What is a drawback of the Internal Rate of Return (IRR) when cash flows are non-conventional?

View solution

Q. What is the purpose of the Modified Internal Rate of Return (MIRR) technique?

View solution

Q. What does the MIRR calculation involve?

View solution

Q. How is the terminal value (TV) of the Cash inflows expected from the project calculated in the Modified Internal Rate of Return (MIRR) method?

View solution

Q. How is capital budgeting defined?

View solution

Q. What are the steps involved in the capital budgeting process?

View solution

Q. What principle does the Pay-back Method rely on to determine the worthiness of a project?

View solution

Q. In the context of the Rate of Return on Original Investment method, what does management do to accept a project?

View solution

Q. What principle does the Discounted Cash Flow (DCF) Method rely on?

View solution

Q. What does the Net Present Value (NPV) rule say about project acceptability?

View solution

Q. How is the Internal Rate of Return (IRR) on a project defined?

View solution

Q. What does the Modified Internal Rate of Return (MIRR) method do to overcome a drawback of the IRR method?

View solution

Q. In ______________, a variety of aspects are randomly tested and results are put into use to identify associated risks and to make proper analysis thereof.

View solution

Q. Under which of the following methods of capital budgeting is the rate of return determined on the figures or data for income and investment derived from accounting statements?

View solution
View All MCQs on IC 89 Management Accounting

Recommended Subjects

Are you eager to expand your knowledge beyond IC 89 Management Accounting? We've handpicked a range of related categories that you might find intriguing.

Click on the categories below to discover a wealth of MCQs and enrich your understanding of various subjects. Happy exploring!

Environmental Engineering

Explore the critical field of Environmental Engineering with our dedicated category....

International Relations

Navigate the complex world of International Relations with our dedicated category....

Business Statistics

Uncover the power of data analysis with our Business Statistics category. Explore...

Chemistry

Unlock the mysteries of chemistry with our Chemistry category. Delve into the...

Cytogenetics

Delve into the genetic mysteries of chromosomes with our Cytogenetics category....

IC 89 Management Accounting

Boost your preparation for the IC 89 Management Accounting exam with our extensive...

Foundation Engineering

Master the principles of Foundation Engineering with our specialized category....

Heat Transfer

Explore the fascinating world of heat transfer with our Heat Transfer category....

Power Plant Engineering

Embark on a journey through the fascinating domain of Power Plant Engineering, where...