According to the capital asset pricing model,the expected return on a security is
A)negatively and linearly related to the security's beta.
B)positively and linearly related to the security's beta.
C)positively and nonlinearly related to the security's beta.
D)positively and linearly related to the security's variance.
E)negatively and nonlinearly related to the security's beta.

Question

Quizplus · Accepted Answer

According to the capital asset pricing model (CAPM), the expected return on a security is positively and linearly related to the security's beta. Beta measures the sensitivity of a security's returns to market risk. A security with a high beta is more sensitive to market fluctuations and should be compensated with higher returns to attract investors. CAPM assumes that investors are rational and risk-averse, and therefore, they require higher expected returns to hold securities with higher market risk as measured by beta.

According to the Capital Asset Pricing Model,the Expected Return on a Security