Which one of the following indices would you use as the most appropriate proxy for the market portfolio and as part of the CAPM model: SP500, FTSE100, and the Dow Jones? Carefully justify your answer and provide all related reasons. Further, assuming a risk-free rate of 1%, an expected return of the market portfolio equal to 6% and a beta parameter of 1.5, with a current price of $100, what is the expected price of an underlying portfolio one year from now? More generally, explain the assumptions under the CAPM model, and mention what type of expected return does the model aim to capture.

Which one of the following indices would you use as the most appropriate proxy for the market portfolio and as part of the CAPM model: SP500, FTSE100, and the Dow Jones? Carefully justify your answer and provide all related reasons. Further, assuming a risk-free rate of 1%, an expected return of the market portfolio equal to 6% and a beta parameter of 1.5, with a current price of $100, what is the expected price of an underlying portfolio one year from now? More generally, explain the assumptions under the CAPM model, and mention what type of expected return does the model aim to capture.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 25P

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