Which of the following equations is INCORRECT?
A)E[RxCML] = rf + x(E[RMkt] + rf)
B)ri = rf + b(E[RMkt] - rf)
C)SD(RxCML)= xSD(RMkt)
D)E[RxCML] = (1 - x)rf + xE[RMkt]

Question

Quizplus · Accepted Answer

The correct equation for the capital asset pricing model (CAPM) is E[Ri] = rf + bi(E[RMkt] – rf), where E[Ri] is the expected return on a security, rf is the risk-free rate, bi is the beta coefficient of the security, and E[RMkt] is the expected return on the market. The equation given in choice A is incorrect because it is missing the beta coefficient.

Which of the Following Equations Is INCORRECT