In the CAPM, investors are rewarded for bearing systematic risk rather than total risk. This is primarily because.. investons aliocate part of their wealth to the risk-free asset. investors form diversified portolios. all investors have the mariket risk aversion parameter. syitematic risk is the same as total risk. Question 4 Say asset returns follow the single factor model: Ri=i+if+i Two well diversified portfolios, A and B are constructed with characteristics Compute the potential arbitrage return on a $1 notional assuming you can borrow and lend at the risk-free rate. 0.02 0.01 0.01 0.02