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

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 since it is based on the overall market performance rather than individual stock characteristics. The other factors may involve more estimation and assumptions, such as selecting a risk-free rate or predicting expected returns on specific stocks.

When Working with the CAPM, Which of the Following Factors