Question

the capital asset pricing model is useful for _________.

○ valuing the net present value of a project

○ determining the discount rate on a companys long - term debt

○ assessing the ratio between risk and return on an investment

○ projecting a companys future performance

Explanation:

The Capital Asset Pricing Model (CAPM) is used to calculate the expected return of an asset based on its systematic risk (beta), the risk - free rate, and the market risk premium. This helps in assessing the relationship between the risk (measured by beta) and the expected return of an investment.

• The first option is incorrect because the net present value (NPV) of a project is calculated using a discount rate (often the cost of capital), but CAPM is not directly used to value NPV.
• The second option is incorrect as CAPM is related to the cost of equity, not the discount rate on a company's long - term debt (which is related to the cost of debt).
• The fourth option is incorrect because CAPM does not project a company's future performance; it is about the risk - return relationship of an investment.

Answer:

C. assessing the ratio between risk and return on an investment