In the context of Capital Market Theory and CAPM, the average investor is least likely to be compensated for assuming risk that can be: A. reduced by diversification B. related to interest rate volatility C. related to changes in macro-economic variables D. measured by the standard deviation of returns of the market portfolio
A.
in captital market th, the risk premium which an investor is rewarded for is based on systematic risk (not total portfolio nor company specific risk) there is no compensation for risk that can be divesified away
strangedays, thanks for responding. If you don’t mind, can you explain why you think the answer is A…
Sorry, it is true dartagnan. CAPM is as follows: E(Ri)= Rf + b(Rm -Rf) where: E(Ri)= is the expected return on the capital asset Rf= is the risk-free rate of interest b= (the beta coefficient) is the sensitivity of the asset returns to market returns, or also : b= COV(Ri,Rm)/VAR(Rm) Rm= is the expected return of the market is sometimes known as the market premium or risk premium (the difference between the expected market rate of return and the risk-free rate of return). Therefore, yes in the CAPM we assume that the portafolio does not contains “naive” risk. Therefore we question asks for the “least likely”…which is the unsystematic risk…
in brief: no reward for doing ur homework but get ur as* kicked for not doing them strangedays, what do u think the answer would have been if we were talking about the markowitz portfolio th ?
so…if you puts all the eggs in one bowl…you have the risk that all will crash at the same time. Actually…tonight I will have a nice omelette…
lol ok couldn’t be more clear 
But, CAPM assumes that there is no inflation and constant interest rates. So, looks to me both A and B are correct Any comments.
CAPM does not assume there is no inflation. Inflation is included in the CAPM given that we use the nominal RFR instead of the Real RFR in the CAPM equation. Nominal RFR=Real RFR + Inflation Premium.