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The beta coefficient of an asset can be expressed as a function of the asset's correlation with the market as follows:

a. Substitute this expression for beta into the Security Market Line (SML), Equation 5-9. This results in an alternative form of the SML.

b. Compare your answer to part a with the Capital Market Line (CML), Equation 5-6 what similarities are observed? What conclusions can be drawn?

Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient...

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