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 correlation coefficient between a security and market rates of return.
D) depicts the total risk of a security.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) provides a risk-return trade-off in which risk is measured in terms of beta, which is a measure of a security's systematic risk or volatility compared to the market as a whole. The model uses this beta value to calculate the expected return on an investment, based on the risk-free rate, market risk premium, and the individual security's level of systematic risk as measured by its beta. Therefore, option B is the correct answer.