1. Draw an ideal SML. Based on the early empirical results, what did the actual risk-return relationship look like relative to the ideal relationship implied by the CAPM?
2. According to the CAPM, what assets are included in the market portfolio, and what are the relative weightings? In empirical studies of the CAPM, what are the typical proxies used for the market portfolio? Assuming that the empirical proxy for the market portfo- lio is not a good proxy, what factors related to the CAPM will be affected?