Business, 05.07.2020 14:01 eelebron0905

SML and CML Comparison The beta coefficient of an asset can be expressed as a function of the asset's correlation with the market as follows: b i = rho I m sigma i/sigma M a. Substitute this expression for beta into the Security Market Line (SML), equation below. SML: ri = rRF + (rm - rRF)bi = rRF + (RMM)bi This results in an alternative form of the SML. b. Compare your answer to part a with the Capital Market Line (CML), equation below. CML: gamma p = gamma RF + (gamma M^-gamma RF/sigma M) sigma p What similarities are observed? What conclusions can be drawn?

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SML and CML Comparison The beta coefficient of an asset can be expressed as a function of the asset'...