Which one of the following explains the concept of CAPM (Capital Asset Pricing Model) most appropriately?
1) It is a method of calculating the expected rate of return on the equity investment made by the stockholders of a company.
2) It is calculated using the rate of return on the safest investment, BETA, and the rate of return beyond the safest investment (which is often referred to as normal risk premium) required by investors.
3) The management of a company can use this to set the target ROA.
4) All of the above
5) 1) & 2) only