Within the capital asset pricing model
A) the risk-free rate is usually higher than the return in the market.
B) the higher the beta, the lower the required rate of return.
C) beta measures the volatility of an individual stock relative to a stock market index.
D) dividends are considered in the calculations.

Question

Quizplus · Accepted Answer

Beta measures the volatility or risk level of an individual stock in relation to the overall stock market. It is included in the calculation of the required rate of return within the CAPM, as a higher beta indicates a higher level of risk and thus a higher required rate of return to compensate for that risk. The risk-free rate is usually a government bond rate and is used as a baseline rate of return in calculating the required rate of return. Dividends are not factored into the CAPM calculation.

Within the Capital Asset Pricing Model