One key conclusion of the Capital Asset Pricing Model is that the value of an asset should be measured by considering both the risk and the expected return of the asset, assuming that the asset is held in a well-diversified portfolio.The risk of the asset held in isolation is not relevant under the CAPM.

Question

Quizplus · Accepted Answer

CAPM posits that the risk and return of an asset should be evaluated based on its contribution to the risk and return of a diversified portfolio, not on its standalone characteristics. It emphasizes the importance of systematic risk (market risk) over unsystematic risk (individual asset risk), which can be diversified away.

One Key Conclusion of the Capital Asset Pricing Model Is