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3. One of the assumptions of CAPM is that investors care about single-period investments. In reality, investors worry about multiple-period investments. In a multiple-period setting,

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3. One of the assumptions of CAPM is that investors care about single-period investments. In reality, investors worry about multiple-period investments. In a multiple-period setting, the parameters of the investment eld can change year after year. For example, the market premium {expected excess return of the market) can change across time, the volatility of the market can change across time, and the betas of assets can change across time. Sup- pose that a security tends to go up when the volatility of the market goes up. Would you expect this security to have a higher or lower expected return than what the CAPM predicts?I

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