According to the CAPM, the relationship between the systematic risk of the asset and the required rate of return is assumed to be:
A) nonlinear and upward sloping.
B) nonlinear and downward sloping.
C) linear and upward sloping
D) linear and upward sloping.

Question

According to the CAPM, the relationship between the systematic risk of the asset and the required rate of return is assumed to be:
A) nonlinear and upward sloping.
B) nonlinear and downward sloping.
C) linear and upward sloping 
D) linear and upward sloping.

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) posits a linear relationship between the systematic risk of an asset (measured by its beta) and its expected return. This relationship is depicted as a straight line with a positive slope, indicating that higher risk (beta) is associated with higher expected returns.

According to the CAPM, the Relationship Between the Systematic Risk