If the standard CAPM holds,a security with a high variance of return and a beta of zero should be expected to earn:

Question

Quizplus · Accepted Answer

According to CAPM, the expected return of a security is equal to the risk-free rate plus a premium based on its beta. A security with a beta of zero has no systematic risk and therefore does not earn a premium above the risk-free rate. The high variance of return is irrelevant in this case. Therefore, the expected rate of return for this security would be the risk-free rate of return.

If the Standard CAPM Holds,a Security with a High Variance