The capital asset pricing model assumes that the expected return of a security is determined by:
A) Multifactor risk.
B) The asset's beta only.
C) Arbitrage risk.
D) Extra-market sources of risk.
E) None of the above.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) posits that the expected return of a security is determined by its beta, which measures its sensitivity to movements in the overall market, not by multifactor risk, arbitrage risk, extra-market sources of risk, or any other factors.

The Capital Asset Pricing Model Assumes That the Expected Return