
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Q3a
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Transcribed Image Text:1. (a) Explain the capital asset pricing model (CAPM), its relationship to the security market line, and the
major forces causing the security market line to shift.
(b) The possible returns from investing in Academy share are as follows:
Probability of state Return if state
of economy
State of economy
occurs
Strong
Normal
0.3
34%
0.4
10%
Weak
0.3
-16%
Based on the above information, calculate the standard deviation of returns and coefficient of
variation for Academy share. What does the coefficient of variation reveal about an investment's
risk that the standard deviation does not?
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