The beta coefficient of an asset can be expressed as a function of the asset's correlation with the market as follows: b1=MiMI a. Substitute this expression for beta into the Security Market Line (SML), equation below. SML: n=rRF+(rMrRF)bi=rRF+(RM)bi This results in an alternative form of the SML. 1. ni=rRF+(rM+rRF)MM II. n=rRF+(rRFrM)MMM III. n=rM+(rMrRF)MPM1 IV. n=rRF+(rMrRF)MM1 The correct equation is b. Compare your answer to part a with the Capital Market Line (CML), equation below. CML: r^p=rHF+(MiMrH)p What similarities do you observe? What conclusions can you drawn? When in this form, the CML and SML The measure of risk in the is p. The measure of risk in the is pimgi, and is than for all assets except those which are perfectly positively correlated with the market. The beta coefficient of an asset can be expressed as a function of the asset's correlation with the market as follows: b1=MiMI a. Substitute this expression for beta into the Security Market Line (SML), equation below. SML: n=rRF+(rMrRF)bi=rRF+(RM)bi This results in an alternative form of the SML. 1. ni=rRF+(rM+rRF)MM II. n=rRF+(rRFrM)MMM III. n=rM+(rMrRF)MPM1 IV. n=rRF+(rMrRF)MM1 The correct equation is b. Compare your answer to part a with the Capital Market Line (CML), equation below. CML: r^p=rHF+(MiMrH)p What similarities do you observe? What conclusions can you drawn? When in this form, the CML and SML The measure of risk in the is p. The measure of risk in the is pimgi, and is than for all assets except those which are perfectly positively correlated with the market