Which risk earns a reward?
Build the market portfolio, distinguish risk that diversifies away from market exposure, then use beta and the CAPM to judge expected returns and prices.
Equilibrium: what investors want must match what exists
Equilibrium: what investors want must match what exists
Build a security market line and a stock fund
- Draw the SML from scratch. State its axes, intercept, slope and its points at beta zero and one.
- Find Astercoil’s required expected return.
- Infer Brindlepath’s beta from its equilibrium expected return.
- Find both dollar holdings, the fund’s beta and its expected return as a weighted average.
- Use the fund’s beta in CAPM. Report the weighted-average return minus the CAPM return and explain the result.
Final coming up and beta still feels like guesswork?
Bring your problem sets. We work through them together until every type feels routine.
Questions, answered.
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