Question

What does the Capital Asset Pricing Model (CAPM) express regarding the expected return on any bundle of assets or cash flows?

a.

E(R) = Rt + B [E (Rm) - Rf]

b.

E(R) = Rf + B [E (Rm) - Rt]

c.

E(R) = B [E (Rm) - Rf] + Rt

d.

E(R) = B [Rf - E (Rm)] + Rt

Answer: (a).E(R) = Rt + B [E (Rm) - Rf] Explanation:According to the Capital Asset Pricing Model (CAPM), the expected return on any bundle of assets or cash flows can be expressed as E(R) = Rt + B [E (Rm) - Rf], where Rt is the risk-free rate, E (Rm) is the return on the market portfolio, and B is the covariance of returns on the assets or cash flows with the return on the market portfolio.

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Q. What does the Capital Asset Pricing Model (CAPM) express regarding the expected return on any bundle of assets or cash flows?

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