Explain capital asset pricing model

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Reference no: EM13214924

Define the following terms, using graphs or equations to illustrate your answers wherever feasible:

a) Portfolio; feasible set; efficient portfolio; efficient frontier

b) Indifference curve; optimal portfolio

c) Capital Asset Pricing Model (CAPM); Capital Market Line (CML)

d) Characteristic line; beta coefficient, b

e) Arbitrage Pricing Theory (APT)

Question 2

Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of -0.25, and a beta coefficient of -0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?

Reference no: EM13214924

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