In the Capital Asset Pricing Model, the return on any security i is equal to: A) E(R_i) = R_F + [E(R_M) - R_F] $\sigma$_i B) E(R_i) = R_M + [E(R_F) - R_M]$\sigma$_i C) E(R_i) = R_F + [E(R_M) - R_F]$\sigma$_M D) E(R_i) = R_F + [E(R_M) - R_F]$\sigma$_i

Question

Quizplus · Accepted Answer

The correct formula for the return on any security i according to the Capital Asset Pricing Model (CAPM) is: the risk-free rate plus the product of the security's beta and the expected market premium (which is the difference between the expected market return and the risk-free rate). This is represented in choice D, where R_F denotes the risk-free rate, E(R_M) denotes the expected market return, and ?_i denotes the beta of security i.

In the Capital Asset Pricing Model, the Return on Any σ\sigmaσ

In the Capital Asset Pricing Model, the Return on Any $\sigma$