The CAPM designates the risk-return tradeoff existing in the market, where risk is defined in terms of beta.

Question

Quizplus · Accepted Answer

This is the fundamental principle of the Capital Asset Pricing Model (CAPM). Beta measures the sensitivity of an asset's returns to market movements, and therefore serves as a proxy for risk in the model. The higher the beta, the higher the expected return, but also the higher the risk.

The CAPM Designates the Risk-Return Tradeoff Existing in the Market