Answer: Risk is factor exposure: The risk of an individual asset is measured in terms of the factor exposure of that asset

## Explanation The correct answer is **B** because: - **Risk is factor exposure**: This is the most successful and practical implication of CAPM. The concept that an asset's risk can be measured by its beta (sensitivity to market movements) has proven to be both true in practice and highly useful for portfolio management, risk assessment, and performance evaluation. - **Option A**: Information is NOT costless and available to all investors in reality. While technology has reduced information costs, significant information asymmetries and costs still exist in financial markets. - **Option C**: Mean-variance utility is a theoretical simplification. In practice, investors have more complex utility functions and care about other risk measures beyond just variance (e.g., skewness, kurtosis, downside risk). - **Option D**: Homogeneous expectations are clearly unrealistic. Investors have diverse expectations, beliefs, and information sets, which is why markets exist and trading occurs. The CAPM's insight that systematic risk (market risk) is what matters for asset pricing, and that this risk can be measured through beta, has stood the test of time and remains a foundational concept in modern finance despite the model's other limitations.

Author: LeetQuiz .