In the capital asset pricing model, the beta coefficient is a measure of__________ risk and an index ofthe degree of movement of an asset's return in response to a change in__________ .
A) nondiversifiable; the market return
B) diversifiable; the bond index rate
C) nondiversifiable; the Treasury Bill rate
D) diversifiable; the prime rate

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) measures the relationship between the expected return and risk of an asset or portfolio. The beta coefficient in the CAPM is a measure of nondiversifiable or systematic risk, which is the risk that cannot be eliminated through diversification. The beta coefficient represents the degree of movement of an asset's return in response to a change in the market return, which is why it is also known as the market risk factor. Therefore, the correct answer is A) nondiversifiable; the market return.

In the Capital Asset Pricing Model, the Beta Coefficient Is