Which one of the following is the best indication that a security is correctly priced according to the Capital Asset Pricing Model?
A)beta of zero
B)beta of 1.0
C)alpha of zero
D)alpha of 1.0
E)alpha of −1.0

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), a security is correctly priced when its expected returns are fully explained by its risk relative to the market, leaving no room for abnormal returns. An alpha (α) of zero indicates that the security is performing exactly as expected given its beta, meaning it is correctly priced according to CAPM. Alpha represents the abnormal returns a security generates over the expected market returns, given its risk (beta).

Which One of the Following Is the Best Indication That