- Option : B
- Explanation : In the capital asset pricing model, the market risk premium is the difference between the return onthe market and the risk free rate, which is equivalent to the return in excess of the market return.

- Option : C
- Explanation : The security market line is a graphical representation of the capital asset pricing model, with beta risk on the x-axis and expected return on the yaxis.

64. The following table shows data for the stock of ABC and a marketindex.

Expected return of ABC | 10% |

Expected return of the market-index | 9% |

Risk free rate | 4% |

Standard deviation of ABC returns | 15% |

Standard deviation of market-index returns | 12% |

Correlation of ABC and market-index returns | 0.5% |

Investor | Expected Standard Deviation | Beta |

Daniel | 30 | 1.60 |

David | 25 | 1.80 |

Diana | 20 | 1.40 |

- Option : B
- Explanation : The expected return can be calculated using the following equation: E (Ri)= Rf+ β (E (Rm) −Rf) E (Ri)= 2.5% + 1.60 (7%−2.5%)= 9.7%

*/?>

*/?>

*/?>

*/?>