# Capital Asset Pricing Model (CAPM): Definition, Formula, Advantages & Example

Instructions:

question 1 of 3

### Which of the following is true of the beta coefficient?

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### 2. Grab a calculator and let's use the CAPM. If the risk-free rate (as reflected by Company X returns) is 0.10, the average market return (as indicated by the 1-year return on Company Z) is 20.63, and Pear Products has a beta coefficient of 0.74, the appropriate required return for Pear Products (rounded to two decimal places) is:

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Show what you know about the capital asset pricing model (CAPM) by passing this multiple-choice quiz. The questions will cover topics such as the assumptions, use and formula of the model.

## Quiz & Worksheet Goals

Test yourself on the following with these study tools:

• The beta coefficient and what it indicates about risk
• Using the CAPM formula
• The nine assumptions of the CAPM
• Benefits of the CAPM

## Skills Practiced

• Defining key concepts - ensure that you can accurately define main phrases, such as beta coefficient
• Reading comprehension - ensure that you draw the most important information from the related lesson on the capital asset pricing model
• Problem solving - use the CAPM formula to solve practice problems