In the capital asset pricing model, the beta coefficient is a measure of
A) economic risk.
B) diversifiable risk.
C) nondiversifiable risk.
D) unsystematic risk.

Question

Quizplus · Accepted Answer

The beta coefficient in the Capital Asset Pricing Model (CAPM) measures nondiversifiable risk, which is also known as systematic risk. This is the risk that cannot be eliminated through diversification in a portfolio, as it affects the overall market. Beta measures the sensitivity of a security's returns compared to the market as a whole. Thus, it is a measure of how much an asset's return is expected to move in response to changes in the market return.

In the Capital Asset Pricing Model, the Beta Coefficient Is