Which of the following gives the best definition of the CAPM approach?
A) Unsystematic risk, as measured by beta, is the only factor affecting the level of return required on a share for a completely diversified investor.
B) Systematic risk, as measured by beta, is the only factor affecting the level of return required on a share for a completely diversified investor.
C) Unsystematic risk, as measured by beta, is one of the key factors affecting the level of return required on a share for a completely diversified investor.
D) Systematic risk, as measured by beta, is one of the key factors affecting the level of return required on a share for a completely diversified investor.

Question

Quizplus · Accepted Answer

The CAPM approach states that the only factor affecting the level of return required on a share for a completely diversified investor is systematic risk, which is measured by beta. Unsystematic risk is considered diversifiable and therefore does not affect the required return on the share.

Which of the Following Gives the Best Definition of the CAPM