According to the CAPM,the expected return on a security is:
A)negatively and non-linearly related to the security's beta.
B)negatively and linearly related to the security's beta.
C)positively and linearly related to the security's variance.
D)positively and non-linearly related to the security's beta.
E)positively and linearly related to the security's beta.

Question

Quizplus · Accepted Answer

The CAPM formula is: E(Ri) = Rf + beta i (E(Rm) - Rf) where E(Ri) is the expected return on security i, Rf is the risk-free rate, beta i is the beta of security i, and E(Rm) is the expected return on the market. This formula implies that there is a positive and linear relationship between the expected return on a security and its beta. Therefore, choice E, "positively and linearly related to the security's beta," is the best answer.

According to the CAPM,the Expected Return on a Security Is