Although the CAPM is intuitively appealing in that it relates risk and return in a straightforward manner, the model's predictive value is often challenged because:

A) statistical tests have not been conclusive in validating the relationship between beta and return proposed by the CAPM.
B) the CAPM only addresses unsystematic risk, not market risk.
C) beta measures only the stock's coefficient of business-specific risk.
D) All of the above

Capital Asset Pricing Model

A model used to determine the theoretical expected return on an investment, considering risk-free return, the investment's volatility, and the expected return of the market.

Beta

A measure of a stock's volatility in relation to the overall market; used in the Capital Asset Pricing Model to determine risk.

Unsystematic Risk

The risk of price change due to the unique circumstances of a specific security, as opposed to overall market movement, which can be diversified away.