Which of the following statements applies to the capital asset pricing model?
a. It assumes that individual securities are priced solely on unsystematic risk.
b. It uses beta to represent unsystematic risk of individual securities.
c. It assumes that if the rate of return on an individual security is greater than the market average, systematic risk of the security must be smaller.
d. It assumes that if beta equals 1, the systematic risk of an individual security is equal to the average risk of the market as a whole.
ANSWER: D
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