When working with the CAPM, which of the following factors can be determined with the most precision?
A) The market risk premium (RPM).
B) The beta coefficient, bi, of a relatively safe stock.
C) The most appropriate risk-free rate, rRF.
D) The expected rate of return on the market, rM.
E) The beta coefficient of "the market," which is the same as the beta of an average stock.

Question

Quizplus · Accepted Answer

The beta coefficient of "the market," which is the same as the beta of an average stock, can be determined with the most precision as it is based on historical market data and can be calculated with mathematical precision. The other factors such as the market risk premium, risk-free rate, and expected rate of return on the market depend on various subjective factors and can be subject to estimation errors. The beta coefficient of a relatively safe stock may also have a degree of uncertainty due to the stock's unique characteristics and the limitations of the CAPM model in predicting stock returns accurately.

When Working with the CAPM, Which of the Following Factors