Question

The capital asset pricing model:_______A) Depicts the total risk of a security. B) Measures risk as the coefficient of variation between security and market rates of return. C) Provides a risk-return trade-off in which risk is measured in terms of beta. D) Provides a risk-return trade-off in which risk is measured in terms of the market volatility.

Answer 1

Answer: Option c

Explanation: In simple words, the capital asset pricing model (CAPM) is a model used to determine an asset's hypothetically suitable necessary return rate to decide to attach assets to a diversified portfolio.

The equation takes into consideration the exposure of the asset to non-verifiable uncertainty , also expressed by the quantity beta (β) in the financial industry, as well as the expected market return and the expected return of a risk-free hypothetical asset.

Hence from the above we can conclude that the correct option is .