Question: According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected

  1. According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected return.
  2. We routinely assume that investors are risk-averse return-seekers; i.e., they like returns and dislike risk. If so, why do we contend that only systematic risk and not total risk is important?
  3. Why are some risks diversifiable and some non-diversifiable?

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