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(b) The following graph (Figure 4.1) shows the Capital Asset Pricing Model (CAPM). Rj= expected rate of returns (security/portfolio) R= expected rate of returns (market
(b) The following graph (Figure 4.1) shows the Capital Asset Pricing Model (CAPM). Rj= expected rate of returns (security/portfolio) R= expected rate of returns (market portfolio) = sensitivity of portfolio as compared to market port folio (systematic risk) (i) What is the equation of the Security Market Line (SML)? (2 marks) (ii) What is the Capital Asset Pricing Model (CAPM) used for? (2 marks) (iii) What is the expected retum if =0 ? Explain your answer. (2 marks) (iv) What is the expected retum if =1 ? Explain your answer. (2 marks) (v) What is the expected retum if >1 ? Explain your answer. (2 marks)
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