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12 As an asset’s beta coefficient decreases, its expected return: does not change increases. decreases.

12

As an asset’s beta coefficient decreases, its expected return:

does not change

increases.

decreases.
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Answer #1

Asnwer:

Formula of CAPM = Risk free rate + Beta x Market risk premium.

Where beta is the measure of risk and it is a multiplier with market risk premium

and market risk premium = market rate of return - risk free return, it indicates the extra rate of return for taking extra risk.

So, if beta cofficient decreases , its expected reutrn will also decreases.

Beacuse, now risk factor decreases and asset with lower risk has lower required rate of return and vice versa.

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