The Capital Asset Pricing Model (CAPM) states that expected return equals:

A The market return

B Risk-free rate + Beta × (Market return − Risk-free rate)

C Dividend yield + growth rate

D The Sharpe ratio

✓ Correct Answer: Option B

CAPM: E(R) = Rf + β(Rm − Rf). Expected return is compensation for systematic risk measured by beta.

💡 Why is B) the correct answer?

The correct answer to the question "The Capital Asset Pricing Model (CAPM) states that expected return equals:" is Option B: Risk-free rate + Beta × (Market return − Risk-free rate).

The other options — A) The market return, C) Dividend yield + growth rate, D) The Sharpe ratio — are incorrect for this CFA Exam Prep question. As explained above: CAPM: E(R) = Rf + β(Rm − Rf). Expected return is compensation for systematic risk measured by beta.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Portfolio Management topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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The Capital Asset Pricing Model (CAPM) states that expected return equals:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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