Question: Consider the Capital Asset Pricing Model (CAPM hereafter): a. List the assumptions and explain fully the main conclusions of the CAPM. [8 marks] b.

Consider the Capital Asset Pricing Model (CAPM hereafter): a. List the assumptions

Consider the Capital Asset Pricing Model (CAPM hereafter): a. List the assumptions and explain fully the main conclusions of the CAPM. [8 marks] b. Describe the equation of the Security Market Line. Because the Security Market Line (SML) is the graphic representation of the expected return-beta relationship, fairly priced assets must plot exactly on the SML". Explain. [8 marks] c. Why is it so difficult to test the CAPM in practice? Discuss fully. [9 marks]

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