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Category > Business & Finance Posted 13 Jul 2017 My Price 11.00

The SML relationship states that the expected

The SML relationship states that the expected risk premium on a security in a one factor model must be directly proportional to the security’s beta. Suppose that this were not the case. For example, suppose that expected return rises more than proportionately with beta as in the figure below.

a. How could you construct an arbitrage portfolio? (Hint: Consider combinations of Portfolios A and B, and compare the resultant portfolio to C.)

b. We will see in Chapter 13 that some researchers have examined the relationship between average return on diversified portfolios and the _ and _2 of those portfolios.

What should they have discovered about the effect of _2 on portfolio return?

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Status NEW Posted 13 Jul 2017 04:07 PM My Price 11.00

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