The CAPM implies that the risk premium on any individual asset or portfolio is the product of the risk premium on the market portfolio and the beta coefficient: p-856 E(ri

) − rf

= βi

[E(rM) − rf]

where the beta coefficient is the covariance of the asset’s excess return with that of the market portfolio as a fraction of the variance of the excess return of the market portfolio:

βi

= Cov(Ri, RM) __________

σM 2