To measure risk, the capital asset pricing model uses
A) beta
B) an asset's standard deviation
C) the volatility of an asset's cash flows
D) the term during which the asset is held

Question

To measure risk, the capital asset pricing model uses​
A) ​beta
B) ​an asset's standard deviation
C) ​the volatility of an asset's cash flows
D) ​the term during which the asset is held

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) uses beta to measure the risk associated with an asset. Beta measures the volatility of an asset's returns in relation to the overall market. A beta of 1.0 indicates that the asset's returns move in line with the market, while a beta greater than 1.0 indicates that the asset's returns are more volatile than the market, and a beta less than 1.0 indicates that the asset's returns are less volatile than the market. Therefore, beta is a useful measure for estimating the required rate of return on an asset and evaluating its riskiness.

To Measure Risk, the Capital Asset Pricing Model Uses​

To Measure Risk, the Capital Asset Pricing Model Uses