___________stipulate a relationship between expected return and risk.
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A. B. C. D.C
The correct answer is B. CAPM.
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between risk and expected return. It is used to estimate the required rate of return for an investment, based on its risk and the cost of capital.
The CAPM assumes that investors require compensation for the time value of money and the risk they are taking by investing in a particular asset. The risk is measured by beta (β), which represents the volatility of the asset's returns relative to the overall market. Beta is used to calculate the expected return on an asset by multiplying it by the market risk premium (Rm - Rf), which represents the return on the overall market minus the risk-free rate.
In other words, the CAPM states that an asset's expected return is equal to the risk-free rate plus a premium that is proportional to the asset's beta and the market risk premium. The higher the beta, the higher the expected return, and the higher the risk.
The Arbitrage Pricing Theory (APT) is another financial model that also attempts to explain the relationship between risk and expected return. However, it differs from the CAPM in that it considers multiple factors that may influence an asset's return, rather than just the market risk premium.
Therefore, the correct answer is B. CAPM stipulates the relationship between expected return and risk.