Under the capital asset pricing model (CAPM), the required return for common stock (or other investments) can be described by the following formula: Kj = Rf + b(Km − Rf), where Km is equal to the return expected in the market as measured by an appropriate index.

Question

Quizplus · Accepted Answer

This is the correct formula for the capital asset pricing model (CAPM), where Kj represents the required return for a security, Rf is the risk-free rate, b is the beta for the security, and (Km - Rf) represents the market risk premium.

Under the Capital Asset Pricing Model (CAPM), the Required Return