Suppose that there are n stocks in a market, which satisfies the assumptions and two...
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Finance
Suppose that there are n stocks in a market, which satisfies the assumptions and two equilibrium conditions for the Capital Asset Pricing Model (CAPM). The market portfolio M is constructed by these n stocks.
(a) Derive the capital asset pricing model (or we called the expected return and beta relationship) for an individual asset k in this market, where 1 k n. (b) Show that the above expected return and beta relationship also holds for market portfolio M. And compute the value of beta on the market portfolio M. (c) Suppose a risky portfolio P is constructed by m stocks in the market, where m < n.Show that the capital asset pricing model holds for the portfolio P.
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