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Assume that the Capital Asset Pricing Model holds. If there is a decrease in the risk - free rate, with no changes to risk or
Assume that the Capital Asset Pricing Model holds. If there is a decrease in the riskfree rate, with no
changes to risk or expected returns of risky assets,
a Does that make investors better off or worse off?
b Does your answer in a depend on the risk tolerance of the investor? If so how? Use a graph to illustrate your
argument.
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