The Capital Asset Pricing Model (CAPM) can be used to determine required rates of return on investments in financial or physical assets.

a. The systematic risk of a security refers to that portion of the variability of an individual security’s returns caused by factors affecting the security market as a whole.

b. Beta, measured as the slope of a regression line between market returns and a security’s returns, is a measure of systematic risk.

c. The unsystematic risk of a security refers to the portion of the variability of a security’s returns caused by factors unique to that security.

d. The security market line expresses the relationship between the required returns from a security and the systematic risk of that security.

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