The ________ tells us that the expected return on a risky asset depends only on that asset's nondiversifiable risk.
A) efficient markets hypothesis
B) systematic risk principle
C) open markets theorem
D) law of one price
E) principle of diversification

Question

Quizplus · Accepted Answer

The systematic risk principle, also known as the capital asset pricing model (CAPM), states that the expected return on a risky asset is determined by its level of systematic risk (beta) and the expected return on the market as a whole. This principle is a cornerstone of modern portfolio theory and suggests that investors can only be compensated for taking on additional risk that cannot be diversified away.

The ________ Tells Us That the Expected Return on a Risky