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Hi, can you please help with the following question, along with the working to derive the solutions. I've been stuck for hours. 5. Write risky

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Hi, can you please help with the following question, along with the working to derive the solutions. I've been stuck for hours.

image text in transcribed
5. Write risky asset is return as RE. Inthe standard deviation-expected return (or, E) space, the coordinates of R1- are denoted by (er-iii). The correlation coefcient of Riwith the market return Rm is denoted by pi'm. The risk-free return is assumed to be Rf. Suppose all assumptions for CAPM hold. i) The standard deviation measures the total risk of a risky asset's return. If only systematic risk is included, what are the coordinates of E in the standard deviation- expected return space? ii) If we link all the points across di'erent assets iwith each point's coordinates being given in l), prove that these points form a straight line. Give the mathematical equation of the straight line. (Hint: you may refer to the proof on pages 27-28 in lecture note 2). iii) What is the mathematical equation for SML in the beta-expected return ()3, E) space? iv) Compare the slope of the two mathematical equations given in ii) and iii). What '8 the relationship between the two mathermtical equations? v) Provide economic interpretation! intuition for the above results

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