- Capm Model 1 (87.92 KiB) Viewed 42 times
CAPM model
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answerhappygod
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CAPM model
CAPM model
QUESTION 4 (10 points) a) Equilibrium asset pricing models, such as the Capital Asset Pricing Model (CAPM), are models of the ex ante risk premium. Explain what is meant by this, and how this differs from the ex post risk premium. (5p) b) If the risk-free interest rate is 2 %, the market price of risk is 6% and the beta of a given asset is 0.7, then what is, according to the CAPM, the risk premium of the asset in question. (2p) c) Can the idiosyncratic risk be larger than the systematic risk? Motivate your answer. (3p)
QUESTION 4 (10 points) a) Equilibrium asset pricing models, such as the Capital Asset Pricing Model (CAPM), are models of the ex ante risk premium. Explain what is meant by this, and how this differs from the ex post risk premium. (5p) b) If the risk-free interest rate is 2 %, the market price of risk is 6% and the beta of a given asset is 0.7, then what is, according to the CAPM, the risk premium of the asset in question. (2p) c) Can the idiosyncratic risk be larger than the systematic risk? Motivate your answer. (3p)