According to the CAPM, the risk premium an investor expects to receive on any stock or portfolio is ________.

A) directly related to the risk aversion of the particular investor
B) inversely related to the risk aversion of the particular investor
C) directly related to the beta of the stock
D) inversely related to the alpha of the stock

Risk Premium

The risk premium is the extra return above the risk-free rate that investors require to compensate for the risk of holding a risky asset.

Risk Aversion

The tendency of investors to prefer safer investments over riskier ones, indicating their reluctance to take on investments that carry a higher chance of losing value.

Beta

An indication of how much a stock's price fluctuates compared to the broader market.