Financial researchers at smith sharon an investment bank, Ask an Expert

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Financial researchers at Smith Sharon, an investment bank, esti- mate the current security market line as E(Ri) = 4.5 + 6.8(?i).

a. Explain what happens to expected return as beta increases from 1.0 to 2.0.

b. Suppose an asset has a beta of -1.0. What is the expected return on this asset? Would anyone want to invest in it? Why or why not?

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