Assume that the CAPM holds.If a security has a beta of 1,its expected return is:
A) the risk-free rate
B) 1 percent
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 equal to the risk-free rate plus the product of the security's beta and the expected excess return of the market portfolio. If a security has a beta of 1, it is expected to have the same level of risk as the market portfolio. Therefore, its expected return should be equal to the return on the market portfolio.

Assume That the CAPM Holds