Question

What does the beta factor (bi) represent in the Capital Asset Pricing Model (CAPM)?

a.

The risk-free rate of return on the asset

b.

The expected market return on the asset

c.

The riskiness of the asset relative to the market

d.

The covariance of the asset's return with the market return

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).The riskiness of the asset relative to the market Explanation:In the CAPM, the beta factor (bi) represents the riskiness of the asset relative to that of the market. A beta value greater than 1 indicates higher volatility compared to the market, while a value less than 1 indicates lower volatility.

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Q. What does the beta factor (bi) represent in the Capital Asset Pricing Model (CAPM)?
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