Assume that the CAPM holds.If a security has a beta of 1, its expected return is:
A)the risk-free rate
B)1.0 %
C)the return on the market portfolio
D)cannot be determined with the above information

Question

Quizplus · Accepted Answer

According to the CAPM, the expected return of a security is determined by its beta relative to the market portfolio. A security with a beta of 1 has the same risk as the overall market and therefore its expected return will be the same as the return on the market portfolio. Therefore, the correct answer is (C) the return on the market portfolio.

Assume That the CAPM Holds