Ace the Series 57 Challenge 2025 – Become a Trading Maverick!

Question: 1 / 400

Which of the following is a key component of the CAPM?

Market share of the company

Intrinsic value calculation

Systematic risk measured by beta

The Capital Asset Pricing Model (CAPM) is a foundational concept in finance that describes the relationship between systematic risk and expected return for assets, particularly stocks. A key component of CAPM is the measurement of systematic risk, which is represented by beta. Beta quantifies how much the price of a security is expected to move in relation to the overall market movement.

By focusing on systematic risk, CAPM helps investors understand the risk-return tradeoff, allowing them to determine the expected return on an investment based on its risk profile compared to the market. This concept aligns with the principle that investors require a higher return for taking on additional risk; thus, the higher the beta, the higher the expected return necessary to justify the risk taken.

Other options, such as market share, intrinsic value calculation, and consumer demand analysis, are not components of CAPM as they do not directly address the relationship between risk and return in the context of market behavior and investor expectations. These factors may play a role in investment decisions or valuations but do not fundamentally represent the systemic nature of risk that CAPM aims to quantify.

Get further explanation with Examzify DeepDiveBeta

Consumer demand analysis

Next Question

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy