The capital asset pricing model
A) provides a risk-return trade-off in which risk is measured in terms of the market volatility.
B) provides a risk-return trade-off in which risk is measured in terms of beta.
C) measures risk as the coefficient of variation between security and market rates of return.
D) depicts the total risk of a security.

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) provides a risk-return trade-off in which risk is measured in terms of beta. Beta measures the sensitivity of a security's return to the overall market's return, and is used as a proxy for the level of risk associated with the security. Other measures of risk, such as total risk or coefficient of variation, are not used in the CAPM.

The Capital Asset Pricing Model