Answer:
d. the difference between the bid and asked prices of a security, which represents the dealer's markup, or profit from a security transaction.
Explanation:
CAPM is an acronym for capital asset pricing model. The capital asset pricing model (CAPM) can be defined as a model or formula that can be used to calculate an investment risk and the expected return on an investment (assets).
Simply stated, the capital asset pricing model gives an investor the relationship between the risk of investing in securities and its expected returns. Thus, it assists investors in making well-informed decisions about whether or not to add to a portfolio.
Additionally, the expected return could be either a profit or loss depending on the risks associated with the securities.
Mathematically, the CAPM is given by this formula;
R_{a} = R_{rf} + \beta_{a} * (R_{m} - R_{rf})
Where;
R_{a} = Expected return on a security
R_{rf} = Risk-free rate
\beta_{a} = beta of the security
R_{m} = Expected return of the market
(R_{m} - R_{rf}) = Equity market premium
In the trading of a security, the dealer's spread refers to the difference between the bid and asked prices of a security, which represents the dealer's markup, or profit from a security transaction.
Simply stated, the bid-ask spread refers to the amount by which the bid price by a dealer is lower than the ask-price for a security or an asset in the market at a specific period of time.
The bid-ask spread exists because of the need for dealers to cover expenses and make a profit. A bid-ask spread is use in the transaction of the following items; options, future contracts, stocks, and currency pairs.
Generally, a dealer who is willing to sell an asset or securities would receive a bid price while the price at which the dealer is willing to sell his asset to another dealer (buyer) is the ask price.
