The expected return-beta relationship
A) is the most familiar expression of the CAPM to practitioners.
B) refers to the way in which the covariance between the returns on a stock and returns on the market measures the contribution of the stock to the variance of the market portfolio,which is beta.
C) assumes that investors hold well-diversified portfolios
D) all of these are true.
E) none of these are true.

Question

Quizplus · Accepted Answer

All of these statements are true regarding the expected return-beta relationship. It is a fundamental concept in the Capital Asset Pricing Model (CAPM), which relates the expected return on an asset to its beta or sensitivity to market risk. This relationship assumes that investors hold well-diversified portfolios and the covariance between the returns on a stock and returns on the market measures the contribution of the stock to the variance of the market portfolio, which is beta. The expected return-beta relationship is a widely used tool by practitioners for making investment decisions.

The Expected Return-Beta Relationship