Which one of the following is the theory which states that the value of a security is dependent upon the pure time value of money,the reward for bearing systematic risk,and the amount of systematic risk?
A) reward-to-risk theory
B) capital asset pricing model
C) risk premium proposal
D) market slope hypothesis
E) security market line proposition

Question

Quizplus · Accepted Answer

The theory described in the question is the capital asset pricing model (CAPM). It states that the expected return of a security is a function of the risk-free rate, the market risk premium and the security's systematic risk (beta). Essentially, it takes into account the time value of money (risk-free rate), the reward for bearing systematic risk (market risk premium), and the amount of systematic risk (beta). The other answer choices are not directly related to this theory.

Which One of the Following Is the Theory Which States