Economics · Financial Management - CAPM
Given below are two statements regarding the Capital Asset Pricing Model (CAPM): Statement I: Under CAPM, the expected return of a share is the risk-free rate of return plus a risk premium for that share. Statement II: The risk premium for a share is the average market risk premium multiplied by beta, where beta is the covariance of share return with market return divided by the variance of market return. In light of the above statements, choose the correct answer from the options given below:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Statement I is incorrect and Statement II is correct
- 2Statement I is correct and Statement II is incorrect
- 3Both Statement I and Statement II are incorrect
- 4Both Statement I and Statement II are correct✓
Correct answer
Both Statement I and Statement II are correct
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