Under the CAPM, an investor should be compensated for bearing:
A)total risk
B)diversifiable risk
C)systematic risk
D)unsystematic risk

Question

Quizplus · Accepted Answer

The CAPM states that an investor should be compensated for bearing systematic risk, also known as market risk. This is because systematic risk cannot be diversified away through portfolio diversification, whereas unsystematic risk (also known as diversifiable risk) can be eliminated by holding a well-diversified portfolio. Therefore, the only type of risk that an investor should be compensated for under the CAPM is systematic risk.

Under the CAPM, an Investor Should Be Compensated for Bearing