The Capital Asset Pricing Model (CAPM)states Which of the Following

question 81

Multiple Choice

The capital asset pricing model (CAPM) states which of the following?

• A)The expected risk premium on an investment is proportional to its beta.
• B)The expected rate of return on an investment is proportional to its beta.
• C)The expected rate of return on an investment is determined entirely by the risk-free rate and the market rate of return.
• D)The expected rate of return on an investment is determined entirely by the risk-free rate.

---

Definitions:

Weighing Facts

The process of assessing the importance, relevance, or truth of information or evidence before making a decision or judgment.

Cognitive Dissonance Theory

A theory suggesting that individuals experience discomfort when holding two or more conflicting cognitions, leading them to change their attitudes, beliefs, or actions to reduce the dissonance.

Human Consistency

The tendency of an individual to maintain the same behaviors, attitudes, and beliefs over time.

Natural Disasters

Severe and extreme weather events or geological occurrences that cause significant damage, disruption, or loss of life, such as earthquakes, floods, or hurricanes.