According to the CAPM:
A)the expected return on a security is negatively and non-linearly related to the security's beta.
B)the expected return on a security is negatively and linearly related to the security's beta.
C)the expected return on a security is positively and linearly related to the security's variance.
D)the expected return on a security is positively and non-linearly related to the security's beta.
E)the expected return on a security is positively and linearly related to the security's beta.

Question

Quizplus · Accepted Answer

According to the CAPM (Capital Asset Pricing Model), the expected return on a security is positively and linearly related to the security's beta. Beta measures the sensitivity of a security's returns to market returns, and the CAPM suggests that investors should be compensated for taking on the additional risk associated with investing in a security with a higher beta. Therefore, a higher beta security should have a higher expected return, and vice versa.