L5 BA2

• $\mathbb{E}[r_i]=r_f+{\beta }_i^{\text{eff}}(\mathbb{E}[r_{\text{eff}}]-r_f)$
• tangent portfolio …
  • best portfolio for any and all investors
    • investors hold scaled tangent portfolio
  • best risk/return tradeoff for all portfolios
  • highest sharpe ratio of any asset
  • shorting the risk-free assets can improve the return even past the efficient frontier
    • scaling the portfolio by risk-factor
      • higher risk-factor = higher returns
• CAPMslides 96todo
  • based on very strong assumptions
  • conclusions are not completely accurate
  • cost of capital is not included in the model