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Unformatted text preview: Risk free rate o Beta on x-axis: Tells us expected return on y-axis o A financial crisis can: Increase the slope of the security market line Increase expected returns Shift the security market line down (decrease expected returns) CAPM: o Exp. Return on Risky Asset: Risk free rate + beta(exp. Return on market portfolio risk free rate) Where market portfolio risk free rate = market risk premium o Portfolio beta: W1B1 + W2B2 +...
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