The Capital Asset Pricing Model (CAPM) States That

question 61

Multiple Choice

The capital asset pricing model (CAPM) states that:

• 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 depends on the risk-free rate and the market rate of return
• D) The expected rate of return on an investment is dependent on the risk-free rate

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Definitions:

Levels of Uncertainty

Different degrees of unpredictability or lack of information about future events or outcomes.

Top Executives

Individuals who hold the highest level positions in organizations, responsible for making strategic decisions.

Organization's Environment

External factors, including economic, legal, technological, and social influences, that affect an organization’s performance and operations.

Environmental Uncertainty

The degree to which future states of the environment are unpredictable, making it difficult for organizations to anticipate changes.