In the context of the Capital Asset Pricing Model (CAPM)the relevant risk is
A)unique risk.
B)systematic risk.
C)standard deviation of returns.
D)variance of returns.
E)none of the above.

Question

Quizplus · Accepted Answer

In the context of the Capital Asset Pricing Model (CAPM), the relevant risk is systematic risk, which is also known as non-diversifiable risk or market risk. It is the risk that cannot be diversified away, as it is inherent in the entire market or economy. The CAPM assumes that investors are only compensated for bearing this type of risk, as opposed to unique risk, which is diversifiable and can be eliminated through proper portfolio diversification. Therefore, the CAPM focuses on measuring and quantifying systematic risk using beta, which represents the sensitivity of an asset's returns to market-wide fluctuations.

In the Context of the Capital Asset Pricing Model (CAPM)the