FIN 260 Lecture Notes - Lecture 42: Capital Asset Pricing Model, Market Risk
Document Summary
. 25: the expected return of the portfolio would be: . 1625 16. 25: the portfolio beta would be: 0. 25 (1. 13) + (0. 25) (1. 03) + (0. 25) (1. 81) + (0. 25) (1. 58) = 1. 39: the market risk of the portfolio is 1. 39. It"s important to realize that the calculation of beta in practice is not an exact science: it"s heavily dependent on the length of data used & what index is used to measure the market, market security line: Q: capital asset pricing model says that investors should be compensated for bearing macro risk. But how exactly are they compensated: the capital asset pricing model answers this with something called the. Security market line (sml): the point of the capital asset pricing model is that investors should be compensated for bearing macro/market risk, amazon. com has a lot of macro/market risk & hence you should receive a high-expected return. So we should see a positive relationship between macro risk (beta) and return.
