The appropriate measure for risk according to the capital asset pricing model is
A) the standard deviation of a firm's cash flows.
B) alpha.
C) the standard deviation of a firm's stock returns.
D) beta.

Question

Quizplus · Accepted Answer

According to the capital asset pricing model, the appropriate measure for risk is beta, which measures the sensitivity of a firm's stock returns to the overall market returns. Beta reflects the systematic risk of an investment, which cannot be diversified away by holding a diversified portfolio of stocks. The other options (A, B, and C) are not appropriate measures for risk according to the capital asset pricing model.

The Appropriate Measure for Risk According to the Capital Asset