Question
1. In comparing the Single Index Model to the Capital Asset Pricing Model (CAPM ) , which of the following statements is the most correct
1.In comparing the Single Index Model to the Capital Asset Pricing Model (CAPM), which of the following statements is the most correct and explain why?
a.The risk free rate is a critical input for both models, used explicitly in the CAPM and determined by OLS regression in the single index model
b.Similar to the single index model, the allocation of each security held in the CAPM "market" portfolio is determined by its risk adjusted return (i - rf)/i
c.The better the proxy is that can represent the market portfolio, the less likely that an index model will require any more indices than that single index
d.All the above are correct
e.None of the above are correct
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