Question: The CAPM computes expected rates of return using the following model (described in the chapter): E[REj] = E[RF] + j {E[RM] E[RF]} Explain

The CAPM computes expected rates of return using the following model (described in the chapter):

E[REj] = E[RF] + ßj × {E[RM] – E[RF]}


Explain the role of each of the three components of this model.

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