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 on an investment is equal to the risk-free rate plus the market-risk premium multiplied by the beta of the investment. Beta is a measure of the systematic risk of an investment in relation to the market. A beta greater than 1 indicates that the investment is more volatile than the market, while a beta less than 1 indicates that it is less volatile than the market. As beta measures volatility, the higher the beta, the higher the required rate of return to compensate for the additional risk.

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