Equation for the security market line
The risk-free rate is 7 percent, and the expected return on the market portfolio is 12 percent. What is the equation for the security market line (SML)?
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When you use a historical risk premium as your expected future risk premiums, what are the assumptions that you are making about investors and markets?
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Calculate the expected rate of return for each portfolio manager and compare the actual returns with the expected returns. Based upon your calculations, select the manager with the best performance.
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