Using the notation of the text,the CAPM states
A) $\bar { R }_{i}$ = $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R_{f}$ )(1 - ?)
B) $\bar { R }_{i}$ = ? $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R _{f}$ )(1 - ?)
C) $\bar { R }_{i}$ = $R _{f}$ + $\beta _ { i }$ ( $\bar { R } _ { M }$ - $R _{f}$ )
D)none of the options

Question

Quizplus · Accepted Answer

This is the standard equation for the Capital Asset Pricing Model (CAPM), which states that the expected return for an individual asset (i) is equal to the risk-free rate (Rf) plus the beta (βi) of the asset multiplied by the market risk premium (Rm - Rf). This equation assumes no taxes (τ) or other market imperfections, which is a simplifying assumption in the basic CAPM. Choice A includes the tax adjustment factor (1 - τ), which is not part of the basic CAPM equation. Choice B includes a risk aversion parameter (λ), which is part of the consumption-based CAPM but not the standard CAPM.

Using the Notation of the Text,the CAPM States A) Rˉi\bar { R }_{i}Rˉi​

Using the Notation of the Text,the CAPM States
A) $\bar { R }_{i}$