Chartered Investment Manager (CIM) Practice Exam · Question
According to the Capital Asset Pricing Model (CAPM), what does the Beta (β) coefficient measure?
Beta in the CAPM specifically measures the sensitivity of an asset's returns to movements in the overall market, representing its systematic risk.
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Question: According to the Capital Asset Pricing Model (CAPM), what does the Beta (β) coefficient measure?
Answer options:
- The total risk of an asset, including both systematic and unsystematic risk. ✅ The asset's non-diversifiable risk, also known as systematic risk, relative to the market.
- The asset's specific risk that can be eliminated through diversification.
- The historical volatility of an asset's price movements.
Correct answer: The asset's non-diversifiable risk, also known as systematic risk, relative to the market.
Explanation: Beta in the CAPM specifically measures the sensitivity of an asset's returns to movements in the overall market, representing its systematic risk.
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