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Following are three portfolios (including the market portfolio) constructed by the security analysts of Botanic Fund. There are three market states: Recession, Normal and Boom,
Following are three portfolios (including the market portfolio) constructed by the security analysts of Botanic Fund. There are three market states: Recession, Normal and Boom, and each has one-third probability to happen. The risk-free rate is 5 Suppose market factor is the only factor matters to the rate of return, compute the betas of portfolios X and Y. Compute the abnormal return of portfolios X and Y. Are they overpriced, underpriced or correctly priced? Discuss the empirical findings in testing the Capital Asset Pricing Model (CAPM). Do they support CAPM
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