In the , the expected return on a security is equal to the risk-free rate plus a single risk premium that is equal to the product of the expected rate of return on the market portfolio less the risk-free rate times the sensitivity of the security's returns to the market return.
A)Arbitrage Pricing Theory
B)Capital Asset Pricing Model
C)Dividend Valuation Model
D)Risk Premium on Debt Model

Question

Quizplus · Accepted Answer

The given statement describes the Capital Asset Pricing Model (CAPM) which is used to determine the expected return on an investment given its level of risk. The model includes a risk premium, which is determined by the market risk premium and the sensitivity of the investment's returns to the market return, and added to the risk-free rate. Therefore, the best choice is option B, Capital Asset Pricing Model.

In the , the Expected Return on a Security Is