Question

According to the capital asset pricing model, fairly priced securities have ________?

1) a positive alpha
2) a negative alpha
3) a zero alpha
4) an undefined alpha

Answer 1

Fairly priced securities have a zero alpha according to the capital asset pricing model.

Step-by-step explanation:

According to the capital asset pricing model (CAPM), fairly priced securities have a zero alpha.

The CAPM is a financial model that measures the expected return of an investment based on its risk. It states that the expected return of a security is equal to the risk-free rate plus a risk premium, which is determined by the security's beta.

An alpha represents the excess return of a security above or below its expected return based on the CAPM. A zero alpha indicates that the security is fairly priced and its return is in line with what is expected.