Based upon the capital asset pricing model, an asset which has more systematic risk than the market:
A) Will earn a rate of return that is greater than the risk-free rate but less than the market rate.
B) Will have a beta greater than 0 but less than 1.
C) Should have a reward-to-risk ratio which is greater than that of the market.
D) Should earn a rate of return which places it on the security market line.
E) Should earn a rate of return which places it above the security market line.

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), all assets should earn a rate of return that places them on the Security Market Line (SML) if the market is in equilibrium. The SML represents the expected return of a security based on its systematic risk (beta). An asset with more systematic risk than the market will have a beta greater than 1, and its expected return will be higher than the market return, but it will still lie on the SML.

Based Upon the Capital Asset Pricing Model, an Asset Which