The CAPM assumes that the only risk of concern to the investor is , which is measured by .

Question

Quizplus · Accepted Answer

The CAPM assumes that an investor is only concerned with systematic risk, which is measured by beta. Systematic risk is the risk that is inherent in the overall market or economy and affects all investments. Beta is a measure of an asset's sensitivity to market movements and is used to estimate the expected return on an investment. Unsystematic risk, on the other hand, is the risk that is specific to a particular company or industry and can be diversified away through proper diversification.

The CAPM Assumes That the Only Risk of Concern to the Investor