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Capital Asset Pricing Model (CAPM) Capital Asset Pricing Model (CAPM) What is two-fund portfolio separation and why is it important? Show graphically (in return-standard deviation

Capital Asset Pricing Model (CAPM)

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Capital Asset Pricing Model (CAPM) What is two-fund portfolio separation and why is it important? Show graphically (in return-standard deviation space) how 2-fund separation works in the context of the CAPM. Explain and show how risk averse investors are better off with capital markets. What are some of the assumptions that need to hold in order for the CAPM to be applied and why are they important? Suppose a stock has a covariance with the market of 0.3 and the market has a variance of 0.2. What is the stock's beta? Is the stock more or less risky than the market

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