The capital asset pricing model (CAPM) is an approach:
A) to determine the price of equity capital.
B) used by marketers to determine the price of saleable product.
C) that can be applied only to domestic markets.
D) none of the above

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) is a model used in finance to determine the expected return of an asset based on its risk, where the risk is measured by its beta. The model is often used to determine the cost of equity capital, which is the rate of return required by investors to compensate them for the risk of owning equity shares in a company. Therefore, choice A is the correct answer. Choice B is incorrect because CAPM is not used by marketers to determine the price of saleable products. Choice C is incorrect because CAPM can be applied to both domestic and international markets. Choice D is incorrect because there is a clear purpose and application of the CAPM.

The Capital Asset Pricing Model (CAPM) Is an Approach