Systematic Risk and the Equity Risk Premium - Putting It All Together: The Capital Asset Pricing Model

4 important questions on Systematic Risk and the Equity Risk Premium - Putting It All Together: The Capital Asset Pricing Model

Of what is the market risk premium an average?

The historical excess return on the market portfolio

What is the security market line and though what two points does it go?

The pricing implication of the CAPM, a linear relation between a stock's beta and expected return. It goes though the points risk-free investment and the market.

How does one find the beta of a portfolio?

Take the weighted average beta of the securities
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What line does one get when the CAPM equation is plotted?

The Security Market Line

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