In the capital asset pricing model, the beta coefficient is a measure of index of the degree of movement of an asset's return in response to a change in risk and an A) diversifiable; the prime rate B) nondiversifiable; the Treasury bill rate C) diversifiable; the bond index rate D) nondiversifiable; the market return

Q: Which of the following is a false statement of the market price of risk found in the Capital Market…

A: Portfolios that blend risk and return optimally are represented by the capital market line (CML).…

Q: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…

A: Risk free rate is free from the risk. Every rate of return given is depends on the risk free rate.

Q: What is CML? a. The CAL defined by the market portfolio. b. All of them. C. The steepest capital…

A: The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the relationship between…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

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A: CAPM or Capital Asset Pricing Model is the formula that represents the relationship between the…

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Q: Critically outline the use of portfolio theory and asset pricing models in capital markets.

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A: According to the question, the relationship between net present value and internal rate of return

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Q: What is financial market equilibrium? And then explain its relation to required rate of return.

A: Financial market equilibrium: Financial market equilibrium is a condition in which money supply…

Q: Explain the assumptions of Capital Asset Pricing Model

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Q: Assets are priced such that _____________________ increase with the riskiness of future payoffs. A)…

A: Solution:- Payoff means the amount which is receivable on maturity.

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Q: Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that A)…

A: Capital Allocation Line (or CAL) refers to that line in finance that shows risk and reward profile…

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Q: Describe the Procedures used to determine the rate of return internal to nonsimple investments?

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Q: It is the uncertainty of future returns

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Q: The expected return on the market is the risk-free rate plus the A. diversified returns B.…

A: According to CAPM model: expected return=rf+beta×rm-rfwhere,rf=risk free raterm=market return

Q: Discuss the main assumptions of the Capital Asset Pricing Model (CAPM).

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Q: The Capital Asset Pricing Model (CAPM) considers which type of risk in pricing the expected returns…

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.