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According to the CAPM, the required return of an asset is the sum of risk-free rate...

According to the CAPM, the required return of an asset is the sum of risk-free rate of return and beta times the risk premium.

True

False

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Answer #1

The answer choice is “TRUE”

As per Capital Asset Pricing Model [CAPM], The Required Rate of Return is calculated by using the following equation

Required Rate of Return = Rf + B[Rm-Rf]

Where; Rf = Risk free rate

Rm = Return from the market

[Rm – Rf] together will be termed as the Market Risk Premium.

Hence, the Required Rate of Return = Rf + [Beta x Market Risk Premium]

Therefore, the given statement is TRUE, as per Capital Asset Pricing Model [CAPM], the required return of an asset is the sum of risk-free rate of return and beta times the risk premium.

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