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QUESTION
Which of the following is not a limitation of using the Capital Asset Pricing Model to measure equity
requirements for operational risk?
a. Measurement error in separately measuring levered and un-levered beta.
b. Time lags in variables like tax and regulation being reflected in historical beta estimates.
c. Requires detailed knowledge of profit and loss accounting to go from beta to a specific measure
of operational risk.
d. All of the above.
Answer: d
Explanation: This is not a good way to measure operational risk, and these are just three of the
reasons why.
Answering d, 'all of the above' for not being a limitation of using the Capital Asset Pricing Model implies that a through c are in fact proper ways to measure equity requirements. Can anyone provide their insight to the answer here? thanks
Which of the following is not a limitation of using the Capital Asset Pricing Model to measure equity
requirements for operational risk?
a. Measurement error in separately measuring levered and un-levered beta.
b. Time lags in variables like tax and regulation being reflected in historical beta estimates.
c. Requires detailed knowledge of profit and loss accounting to go from beta to a specific measure
of operational risk.
d. All of the above.
Answer: d
Explanation: This is not a good way to measure operational risk, and these are just three of the
reasons why.
Answering d, 'all of the above' for not being a limitation of using the Capital Asset Pricing Model implies that a through c are in fact proper ways to measure equity requirements. Can anyone provide their insight to the answer here? thanks
