The Capital Asset Pricing Model:
A)has serious flaws because of its complexity.
B)measures relevant risk of a security and shows the relationship between risk and expected return.
C)was developed by Markowitz in the 1930s.
D)discounts almost all of the Markowitz portfolio theory.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) measures relevant risk of a security and shows the relationship between risk and expected return. While it may have limitations, it is widely used in finance for calculating expected return on an investment based on its risk. Markowitz did develop modern portfolio theory, but the CAPM is a separate concept that builds on it. Option D is incorrect as the CAPM is based on Markowitz portfolio theory.