What does the CAPM state about an asset's expected return?
- A It equals the risk-free rate plus beta times the market risk premium
- B It equals the market return divided by beta
- C It equals the risk-free rate times beta
- 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.





