Part 1) Assume rf is 5% and rm is 10%. According to the SML and CAPM, an asset with a beta of -2.0 has a required return of negative 5%[=5-2(10-5)]. Can this be possoble?
Part 2) Does this mean that the asset has negative risk? Why would anyone ever invest in an that has an expected and required return that is negative? Explain in detail.