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Basic Question 7 of 11
Capital asset pricing theory asserts that portfolio returns are best explained by ______.
B. specific risk
C. systematic risk
D. diversification
A. economic factors
B. specific risk
C. systematic risk
D. diversification
User Contributed Comments 6
| User | Comment |
|---|---|
| Poorvi | can anyone explain? |
| kodali | Risk that can not be diversified |
| mattg | Systematic risk (beta) is unavoidable, even with proper diversification |
| jpducros | CAPM --> SML graph --> Expected return expressed in function of systematic risk (Beta). |
| thekobe | look at the Capm formula, it includes Beta which refers to systematic risk |
| zriddle | The individual stock is not included in the formula. The only variables are Market, rf, and Beta. |
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Learning Outcome Statements
explain the capital asset pricing model (CAPM), including its assumptions, and the security market line (SML)
calculate and interpret the expected return of an asset using the CAPM
CFA® 2025 Level I Curriculum, Volume 2, Module 2.