The capital asset pricing model:
A)provides a risk-return trade-off in which risk is measured in terms of the market returns.
B)provides a risk-return trade-off in which risk is measured in terms of beta.
C)measures risk as the coefficient of variation between security and market rates of return.
D)depicts the total risk of a security.

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) measures risk in terms of beta, which is a measure of the sensitivity of a security's returns to the returns of the market as a whole. The model provides a risk-return tradeoff based on this measure of risk, with higher expected returns associated with higher beta and therefore higher market risk.

The Capital Asset Pricing Model