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The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held 36) _. The CAPM states that
The capital asset pricing model (CAPM) explains how risk should be considered when stocks and other assets are held 36) _. The CAPM states that any stock's required rate of return is 37) the risk-free rate of return plus a risk premium that reflects only the risk remaining after diversification. Most individuals hold stocks in portfolios. The risk of a stock held in a portfolio is typically 38) the stock's risk when it is held alone. Therefore, the risk and return of an individual stock should be analyzed in terms of how the security affects the risk and return of the portfolio in which it is held. The expected rate of return on a portfolio equals the weighted average of the expected returns on the assets held in the portfolio. A portfolio's risk isn't calculated as the weighted average of the individual stock's standard deviations; the portfolio's risk is generally 39) because diversification 40) the portfolio's risk
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