1. Which of the following is NOT a problem associated with the Capital Asset Pricing Model?
A. The CAPM assumes that there is a market portfolio
B. The CAPM assumes that there is no inflation
C. The CAPM assumes that Betas are constant
D. All of these are problems with the CAPM
2. Company X has a higher required return than Company Y, but Company X has a lower standard deviation of returns than Company Y. Given this information, which of the following statements is CORRECT?
A. Company X has less market risk than Company Y.
B. Company X has more company-specific risk than Company Y.
C. Company X has a higher correlation with the market than Company Y.
D. Company X’s stock is a better buy than Company Y’s stock.