Which of the following is consistent with the CAPM and efficient capital markets? A) A security with a beta of 1 has a return last year of 8% when the market has a return of 12%. B) Small stocks with a beta of 1.5 tend to have higher returns on average than large stocks with a beta of 1.5. C) A security with only diversifiable risk has an expected return that exceeds the risk-free interest rate.D) A security with only systematic risk has an expected return that exceeds the risk-free interest rate.

In a market of the capitals, the return that a person will get from the security will depend upon the risk that has been associated with that security. The CAPM says that the return of the security that a person will get depend upon the beta of the security. Here beta is the measure with which we can measure the risk of the security. It is an absolutely correct measure of the security risk.

marvineetesh3 marvineetesh3 · Answer 2 · 2022-02-24T14:41:55+01:00

A security with a beta of 1 has a return last year of 8% when the market has a return of 12% is consistent with the CAPM and efficient capital markets.

Option A is correct.

What is CAPM and capital markets?

In a market of the capitals, the instrument that an individual will acquire from the security will depend upon the danger that has been linked with that security.

The CAPM (capital asset pricing model) states that the return of the security that an individual will acquire depend upon the beta of the security.

Here, beta is the measurement with which we can measure out the risk of the security. It is a perfectly exact measure of the safety risk. The model provides for determining risk and repeating that risk into ideas of predicted return on equity.

Therefore, option A is correct.

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