The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the
A) positive relationship between risk and return.
B) standard deviation between a risk premium and an investment's expected return.
C) exact price that an investor should be willing to pay for any given investment.
D) difference between a risk-free return and the expected rate of inflation.

Question

Quizplus · Accepted Answer

CAPM illustrates the idea that investors need to be compensated in two ways: time value of money and risk. The model shows that the expected return on an investment is equal to the risk-free rate plus a risk premium, which is based on the beta of the investment. This demonstrates a positive relationship between risk and expected return, not the other options mentioned.

The Capital Asset Pricing Model (CAPM) Is a Mathematical Model