The capital asset pricing model (CAPM) suggests that the required rate of return on a stock is directly influenced by the stock's :
A) prevailing level of the industry competition.
B) beta.
C) liquidity.
D) size (market capitalization).

Question

Quizplus · Accepted Answer

The CAPM suggests that the required rate of return on a stock is directly influenced by its beta, a measure of the stock's volatility relative to the stock market as a whole. A higher beta suggests a higher level of risk and a higher required rate of return. The other options - industry competition, liquidity, and market capitalization - may be relevant to other aspects of a stock's valuation, but they are not direct influences on the required rate of return according to the CAPM.

The Capital Asset Pricing Model (CAPM) Suggests That the Required