▁the ▁rate ▁at ▁which ▁future ▁c ash ▁flows ▁produced ▁by ▁the ▁asset ▁should ▁be ▁disc ount ed ▁given ▁that ▁asset ' s ▁relative ▁risk iness . ▁▁ ▁Bet as ▁exceed ing ▁one ▁sign ify ▁more ▁than ▁average ▁" ris k iness "; ▁bet as ▁below ▁one ▁indicate ▁lower ▁than ▁average . ▁Thus , ▁a ▁more ▁ris ky ▁stock ▁will ▁have ▁a ▁higher ▁beta ▁and ▁will ▁be ▁disc ount ed ▁at ▁a ▁higher ▁rate ; ▁less ▁sensitive ▁stock s ▁will ▁have ▁lower ▁bet as ▁and ▁be ▁disc ount ed ▁at ▁a ▁lower ▁rate . ▁ ▁Given ▁the ▁accepted ▁con ca ve ▁utility ▁function , ▁the ▁C AP M ▁is ▁consistent ▁with ▁intu ition — in vest ors ▁( should ) ▁require ▁a ▁higher ▁return ▁for ▁holding ▁a ▁more ▁ris ky ▁asset . ▁ ▁Since ▁beta ▁reflect s ▁asset - specific ▁sens itivity ▁to ▁non - d ivers ifiable , ▁i . e . ▁market ▁risk , ▁the ▁market ▁as ▁a ▁whole , ▁by ▁definition , ▁has ▁a ▁beta ▁of ▁one . ▁Stock ▁market ▁indices ▁are ▁frequently ▁used ▁as ▁local ▁pro x ies ▁for ▁the ▁market — and ▁in ▁that ▁case ▁( by ▁definition ) ▁have ▁a ▁beta ▁of ▁one . ▁An ▁invest or ▁in ▁a ▁large , ▁divers ified ▁port folio ▁( such ▁as ▁a ▁mut ual ▁fund ), ▁therefore , ▁expects ▁performance ▁in ▁line ▁with ▁the ▁market . ▁ ▁R isk ▁and ▁divers ification ▁The ▁risk ▁of ▁a ▁port folio ▁compr ises ▁system atic ▁risk , ▁also ▁known ▁as ▁und ivers ifiable ▁risk