Begin with the fundamental equation E[mRi] = 1 where Ri is the gross return on asset i, and m is the pricing kernel. Noting that this fundamental equation should hold for the gross returns on the riskless asset and on the market portfolio (RM) as well, obtain a CAPM-like expression. Define a functional relation between m and R so that you will obtain precisely the CAPM expression.

Begin with the fundamental equation E[mRi]=1 where Ri is the gross return on asset i, and m is the pricing kernel. Noting that this fundamental equation should hold for the gross returns on the riskless asset and on the market portfolio (RM) as well, obtain a CAPM-like expression. Define a functional relation between m and RM so that you will obtain precisely the CAPM expression