Question: CAPM describes the relationship between risk and returns which is done by the Security Market Line. There is a direct relationship between risk and return.

CAPM describes the relationship between risk and returns which is done by the Security Market Line. There is a direct relationship between risk and return. The more risk... the more return is demanded. The formula that you have above describes the expected return on a particular stock. It's the function of the risk-free rate times beta times the market risk premium.

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