Which of the following is consistent with the CAPM and efficient capital markets?
A)A security with a beta of 1 has a return last year of 8% when the market has a return of 12%.
B)Small stocks with a beta of 1.5 tend to have higher returns on average than large stocks with a beta of 1.5.
C)A security with only diversifiable risk has an expected return that exceeds the risk-free interest rate.
D)A security with only systematic risk has an expected return that exceeds the risk-free interest rate.

Question

Quizplus · Accepted Answer

In CAPM, a security with only systematic risk (measured by beta) should have an expected return that exceeds the risk-free rate, as it is compensated for the market risk.

Which of the Following Is Consistent with the CAPM and Efficient