Answer-first summary for fast verification
Answer: Less than 1.
The CAPM equation is expressed as: $$E(R_i) = R_f + \beta [E(R_m) - R_f]$$ Given that the security's expected return equals the market's risk premium, we can deduce: $$E(R_i) = E(R_m) - R_f$$ Substituting into the CAPM equation: $$E(R_m) - R_f = R_f + \beta [E(R_m) - R_f] - R_f$$ Simplifying: $$E(R_m) - R_f = \beta [E(R_m) - R_f]$$ For this equality to hold when the risk-free rate ($R_f$) is positive, the beta ($\beta$) must be **less than 1**. If beta were equal to or greater than 1, the security's return would exceed the market risk premium, which contradicts the given condition.
Author: LeetQuiz Editorial Team
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The expected return for a security equals the market's risk premium. Assuming the risk-free rate is positive and the Capital Asset Pricing Model (CAPM) holds, the beta of the security is:
A
Less than 1.
B
Equal to 1.
C
Greater than 1.
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