The CAPM provides a model of determining expected security returns that is:
A) precise in its calculations of risk premiums.
B) imprecise, but generally an acceptable guideline.
C) excellent for high beta stocks.
D)excellent for all well-diversified portfolios.

Question

Quizplus · Accepted Answer

The CAPM model is based on several simplifying assumptions and therefore cannot precisely calculate risk premiums. However, it still provides a generally accepted guideline for determining expected security returns. Its usefulness may vary based on specific factors such as the beta of the stock or the diversification of the portfolio, but it is not generally excellent for all well-diversified portfolios or high beta stocks.

The CAPM Provides a Model of Determining Expected Security Returns