premium of a specific security how much additional return must an investor anticipate receiving from a risky security, in order to justify holding that risky security in lieu of a riskless asset generally presumed to be United States Treasury instruments (Brealey, & Myers, 1986, p. 151).
The capital asset pricing model is used to determine the level of the market risk premium. The capital asset pricing model states that "in well functioning capital markets the expected risk premium on each investment is proportional to its beta . . . each investment should lie on the sloping market line connecting Treasury bills and the market portfolio (Brealey, & Myers, 1986, p. 152).
Brigham (1984, p. 158) defined the basic assumptions of the capital asset pricing model. These assumptions are as follows:
1. All investors are single period expected utilit
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