Chartered Investment Manager (CIM) Practice Exam · Question
In the Capital Asset Pricing Model (CAPM), what does 'beta' primarily represent?
Beta in the CAPM measures a security's sensitivity to market movements, representing its systematic or non-diversifiable risk.
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Question: In the Capital Asset Pricing Model (CAPM), what does 'beta' primarily represent?
Answer options:
- The total risk of an individual security. ✅ The systematic risk of a security relative to the market.
- The unsystematic risk of a security.
- The standard deviation of a security's returns.
Correct answer: The systematic risk of a security relative to the market.
Explanation: Beta in the CAPM measures a security's sensitivity to market movements, representing its systematic or non-diversifiable risk.
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