he covariance between the return on Apple stock and the S&P 500 is 0.12. The variance of the return on the S&P 500 is 0.09. Apple stock is: a. Riskier than the market b. Less risky than the market c. As risky as the marke
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The covariance between the return on Apple stock and the S&P 500 is 0.12. The variance of
the return on the S&P 500 is 0.09. Apple stock is:
a. Riskier than the market
b. Less risky than the market
c. As risky as the market
d. Expected to have a good return when the market is doing poorly
e. None of the above
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