Question: Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph

Question 2 (30 points) 2.1 (12 points) State the assumptions of

Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph the following concepts: (a) Capital Market Equilibrium in CAPM (b) Capital Market Line (c) Expected return for an arbitrary asset j: E(r;) = PRE + B,(E(TM) - PRF). Contrast this with the expected return on an efficient portfolio (d) Systematic and idiosyncratic risk Question 2 (30 points) 2.1 (12 points) State the assumptions of the Capital Asset Pricing Model (CAPM). Explain and, where relevant, demonstrate on a graph the following concepts: (a) Capital Market Equilibrium in CAPM (b) Capital Market Line (c) Expected return for an arbitrary asset j: E(r;) = PRE + B,(E(TM) - PRF). Contrast this with the expected return on an efficient portfolio (d) Systematic and idiosyncratic risk

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