Q16I.

Expert-verifiedFound in: Page 226

Book edition
9th

Author(s)
Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus

Pages
748 pages

ISBN
9780078034695

**If the simple CAPM is valid, which of the situations in Problems 13 – 19 below are possible? Explain. Consider each situation independently.**

The correct answer would be: “Not Possible”

**The CAPM or the Capital Asset Pricing Model is used to determine the rate of return of an asset by weighing the associated risks and other factors. It is measured in terms of beta and the required rate of return.**

Portfolio A clearly dominates the market portfolio. It has a lower standard deviation with a higher expected return.

Therefore this is not possible, if the CAPM is valid.

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