In the CAPM world, a security with a beta of zero has an expected return equal to the ________ rate of return.
A) negative
B) zero
C) market
D) risk free

Question

Quizplus · Accepted Answer

According to the CAPM, the expected return of a security is the risk-free rate plus a risk premium based on its beta. A security with a beta of zero has no systematic risk, and therefore no additional risk premium is required. Its expected return is simply equal to the risk-free rate.

In the CAPM World, a Security with a Beta of Zero