According to the capital asset pricing model (CAPM), _____.
A)investors should expect to be rewarded for the total risk associated with an individual investment, which is measured by the standard deviation of returns on the investment
B)investors should expect to be rewarded for only the unsystematic risk associated with an individual investment, which is measured by the standard deviation of returns
C)investors should expect to be rewarded only for the systematic risk associated with an individual investment, which is measured by the standard deviation of returns
D)investors should expect to be rewarded for only the unsystematic risk associated with an individual investment, which is measured by the beta coefficient
E)investors should expect to be rewarded for only the systematic risk associated with an individual investment, which is measured by the beta coefficient

Question

According to the capital asset pricing model (CAPM), _____. 
A)investors should expect to be rewarded for the total risk associated with an individual investment, which is measured by the standard deviation of returns on the investment
B)investors should expect to be rewarded for only the unsystematic risk associated with an individual investment, which is measured by the standard deviation of returns
C)investors should expect to be rewarded only for the systematic risk associated with an individual investment, which is measured by the standard deviation of returns
D)investors should expect to be rewarded for only the unsystematic risk associated with an individual investment, which is measured by the beta coefficient
E)investors should expect to be rewarded for only the systematic risk associated with an individual investment, which is measured by the beta coefficient

Quizplus · Accepted Answer

According to the CAPM, investors should expect to be rewarded for only the systematic risk associated with an individual investment, which is measured by the beta coefficient. The beta coefficient measures the sensitivity of an asset's returns to changes in the market as a whole. This means that investors are not rewarded for unsystematic risk, which is unique to a specific asset and can be diversified away. The CAPM assumes that investors are rational and risk-averse, and will only accept additional risk if they are compensated with higher expected returns.

According to the Capital Asset Pricing Model (CAPM), _____