Q5 Capital Asset Pricing model (CAPM)

A and B

5. Capital Asset Pricing Model (CAPM) Given the CAPM equation below (also equation for the Security Market Line in the graph), EXPLAIN: A) What exactly is the "risk premium" (rmr1) ? B) What is the role of the firm's BETA (a low Beta for some firms, and a higher Beta for others) within the CAPM that generates a final "Return to Equity Holders" or ce? CAPM: rs=ri+Beta(rmri)