you plotted the returns of a company against those of the market and found that the slope of your line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue in the future.

Question

Quizplus · Accepted Answer

In the CAPM, a negative beta (slope) implies that the stock moves inversely to the market. For a well-diversified investor, this would suggest a required return less than the risk-free rate, as the stock provides a hedge against market movements.

You Plotted the Returns of a Company Against Those of the Market