The theory that states the value of a security depends on the time value of money, the reward for bearing systematic risk, and the amount of systematic risk is called the:
A) reward-to-risk ratio.
B) efficient frontier.
C) capital asset pricing model.
D) market risk premium.
E) market pricing theory.

Question

Quizplus · Accepted Answer

The statement describes the Capital Asset Pricing Model (CAPM), which is a widely used model for calculating the expected return of an asset based on its systematic risk. The CAPM takes into account the time value of money, the reward for bearing systematic risk (as measured by beta), and the market risk premium, which is the excess return that investors demand for investing in a risky asset over a risk-free asset. None of the other choices fully describe the theory mentioned in the statement.

The Theory That States the Value of a Security Depends