According to capital asset pricing model a security expected return equals risk free rate plus premium
According to capital asset pricing model a security expected return equals risk free rate plus premium
A: Equal to the security beta
B: Based on unsystematic risk of the security
C: Based on total risk of the security
D: Based on systematic risk of the security
The Capital Asset Pricing Model states that expected return on a security equals risk free rate plus risk premium. The premium depends on systematic risk measured by beta. Beta shows how much a security moves with the market. For example if beta is greater than one the security is more volatile than the market. This model helps investors decide if a stock is worth the risk. CAPM is widely used in finance to calculate cost of equity and to evaluate investments.