According to the CAPM equation,which of the following represents the risk premium for security 'i'? A)fi_i(r_m) B)fi_i(r_m- r_f) C)fi_i(r_m- r_f)a_m²D)fi_i

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Quizplus · Accepted Answer

The risk premium for security 'i' is represented by the difference between the expected return on the market and the risk-free rate multiplied by the beta of security 'i'. This is shown in the CAPM equation as fi_{i. Option B includes this formula as well as subtracting the expected return of security 'i' (r_{) multiplied by the difference between the market risk premium and the risk-free rate (m}- f}). This is the correct representation of the risk premium for security 'i'. The other options do not accurately represent the CAPM equation for calculating the risk premium.

According to the CAPM Equation,which of the Following Represents the Risk