Primary Determinant of Return

CFA Level I Corporate Finance
#1

Hello All,

Can you please help me with this one?

The primary determinant of expected return of an asset, as per CAPM is

A) Beta

B) Market Risk Premium.

OA is A. Why not B)? Ri = Rf + Beta(Market Risk Premium). How do I know what’s primary and what’s secondary? I am sure I am missing something. I would really appreciate any help.

Thanks in advance.

#2

It’s a stupid question.

The point they’re trying to make (I suspect; I don’t do stupid very well) is that the MRP is the same for all assets, whereas beta can be different for all assets. As for primary vs. secondary vs. tertiary (don’t forget the risk-free rate): who knows?

#3

Thank you S2000magician.

#4

You’re welcome.

#5

Yes, The market risk premium is same for every security. Only beta is variable figure. CAPM model says Ri = Rf + Beta(Market Risk Premium) . So beta is the main figure . It would be great if you can provide more information.