In the capital asset pricing model, the expected return on an asset with a beta of zero is the:
A) market risk premium.
B) risk-free rate of interest.
C) market risk premium, less the risk-free rate of interest.
D) risk-free rate of interest, plus the market risk premium.

Question

Quizplus · Accepted Answer

The expected return on an asset with a beta of zero in the Capital Asset Pricing Model (CAPM) is the risk-free rate of interest. This is because a beta of zero implies the asset is uncorrelated with market movements, hence its expected return does not include any risk premium above the risk-free rate.

In the Capital Asset Pricing Model, the Expected Return on an Asset