Consider the CAPM line shown below. What is the excess return of the market over the risk-free rate? What is the risk-free rate?
Answer to relevant QuestionsWrite the CAPM shown in Problem 4 in price form. In Problem 4 Assume the equilibrium equation shown below. What is the return on the zero-beta portfolio and the return on the market assuming the zero-beta model holds? Assume you paid a higher tax on income than on capital gains. Furthermore, assume that you believed that prices were determined by the post tax CAPM. Now another investor comes along who believes that prices are determined ...Referring to the results of Problem 1, illustrate the arbitrage opportunities that would exist if a portfolio called D with the following properties were observed: A number of different models can be used to estimate return. Derive the circumstances under which the use of the zero-beta model might lead to the market being considered inefficient when the standard CAPM indicated ...
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