The Capital Asset Pricing Model (CAPM) assumes that the risk-to-reward ratio is constant.

Question

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CAPM posits that the expected return on a security or a portfolio equals the rate on a risk-free security plus a risk premium, which is based on the beta of that security or portfolio. This implies a linear relationship between the expected return and the systematic risk (beta), suggesting a constant risk-to-reward ratio across different levels of systematic risk.

The Capital Asset Pricing Model (CAPM) Assumes That the Risk-To-Reward