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What does the CAPM state about an asset's expected return?

  1. A It equals the risk-free rate plus beta times the market risk premium
  2. B It equals the market return divided by beta
  3. C It equals the risk-free rate times beta
  4. D It is independent of market movements
Answer

It equals the risk-free rate plus beta times the market risk premium

CAPM compensates investors only for systematic risk, since unsystematic risk can be diversified away at no cost.

All CFA MCQs

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