Assignment 6

Assignment 6 - 3. According to Sharpe, why is the CAPM...

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1. What two financial ideas preceded the CAPM? The arbitrage pricing theory and Tobin’s Separation Theorem. 2. What does Tobin’s Separation Theorem say? It says that you can separate the problem by first finding that the optimal combination of risky securities and then deciding whether to lend or borrow.
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Unformatted text preview: 3. According to Sharpe, why is the CAPM still the most popular asset pricing model? Because the fundamental idea of the CAPM remains the same even though its becoming more complex with time. It is a simple and strong set of assumptions that give a nice and clean result....
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This note was uploaded on 03/26/2008 for the course FINC 421 taught by Professor Viale during the Fall '07 term at Texas A&M.

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