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Applying the CAPM Show graphically (in return-standard deviation space) how some investors may be borrowers, while others may be lenders in the capital markets under
- Applying the CAPM
- Show graphically (in return-standard deviation space) how some investors may be borrowers, while others may be lenders in the capital markets under CAPM.
- Show how the existence of differences between the borrowing and lending rates may affect both borrowers and lenders. Assume that the borrowing rate is higher than the lending rate.
- Show and explain how the securities market line (SML) plots the relationship between risk and return.
- Explain how a security may be undervalued or overvalued based on the SML.
- What are some of the criticisms often cited when implementing the CAPM? Do you think the CAPM should be used by practitioners when assessing an assets risk/return? Why?
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