The capital asset pricing model implies that the only factors that determine the required rate of return on a stock are the amount of market risk the stock is exposed to and the expected return in the market.

Question

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The CAPM states that the required rate of return on a stock is determined by its exposure to market risk (as measured by beta) and the expected return of the market as a whole. Other factors, such as company-specific risk, are not taken into account in the CAPM.

The Capital Asset Pricing Model Implies That the Only Factors