Question

What does the Capital Asset Pricing Model (CAPM) primarily focus on when estimating risk?

a.

Specific risk of the asset

b.

Market risk of the asset

c.

Historical returns of the asset

d.

Diversification benefits of the asset

Answer: (b).Market risk of the asset Explanation:The CAPM primarily focuses on estimating the market risk or systematic risk of the asset, which is the risk associated with overall market movements. It does not consider the specific risk associated with the issuing company, as this can be diversified away.

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Q. What does the Capital Asset Pricing Model (CAPM) primarily focus on when estimating risk?

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