According to the CAPM:
A) the expected return on a security is negatively and non-linearly related to the security's beta.
B) the expected return on a security is negatively and linearly related to the security's beta.
C) the expected return on a security is positively and linearly related to the security's variance.
D) the expected return on a security is positively and non-linearly related to the security's beta.
E) the expected return on a security is positively related to the security's beta.

Question

Quizplus · Accepted Answer

According to the CAPM, the expected return on a security is positively related to the security's beta. This relationship is linear, meaning that a higher beta corresponds to a higher expected return, and a lower beta corresponds to a lower expected return. Therefore, choice E is the best choice.