Question

According to the capital asset pricing model (CAPM), what is the expected return on a security with a beta of zero?

Multiple choice question.

The market risk premium


The risk-free rate of return


The return on market


Zero

Answer 1

According to the capital asset pricing model (CAPM), the expected return on a security with a beta of zero is equal to the risk-free rate of return. This is because a beta of zero indicates that the security is not correlated with the market and does not have any market risk, thus investors would expect a return equivalent to the risk-free rate.

So, the correct answer is:

**The risk-free rate of return**