Based on the CAPM, the ____ the beta of a project, the ____ the required rate of return on that project.
A) higher; higher
B) lower; higher
C) higher; lower
D) B and C
E) none of the above

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), the required rate of return increases with the beta of a project. This relationship is positive and direct, meaning that as the beta of a project increases, the required rate of return on that project should increase as well. Therefore, the correct answer is A, higher beta leading to a higher required rate of return.

Based on the CAPM, the ____ the Beta of a Project