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MODERN PORTFOLIO THEORY (Systematic vs unsystematic risk (Beta represents…
MODERN PORTFOLIO THEORY
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Beta and CAPM model
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greater return, greater risk
if market improves, shares decrease
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Limitation of CAPM
Assumes
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perfect capital markets (all info available at the same time to all investors; assets can be bought/sold w/o transaction costs or tax)
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variables remain constant over time (Beta, RFR, Rp)