Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
NEGATIVE BETA QUESTION
So far, we have been silent about expected
(a) There is something wrong about this conjecture. Using the numbers provided above, prove that this SML is flawed. (Prove a brief explanation)
(b) Draw the rest of SML where is β negative in the above based on your answer in a) What is the meaning of the expected returns if they are lower (or higher or equal given your answer) then 4%? (Prove a brief explanation)
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