Two central components of the CAPM are the ________.
A)risk-free rate and the market risk premium
B)risk premium and the inflation rate
C)inflation rate and the market rate
D)market rate and the inflation premium

Question

Quizplus · Accepted Answer

The CAPM (Capital Asset Pricing Model) is based on the idea that the expected return on an asset is equal to the risk-free rate plus a premium for the extra risk undertaken by the investor. This premium is calculated as the product of the asset's beta (systematic risk) and the market risk premium (the difference between the return on the market portfolio and the risk-free rate). Therefore, the two central components of the CAPM are the risk-free rate and the market risk premium.

Two Central Components of the CAPM Are the ________