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Suppose rf is 5% and rM is 10%. According to the SML and the
CAPM, an asset with a beta of −2.0
has a required return of negative 5% [= 5 − 2(10 − 5)]. Can this
be possible? Does this mean that
the asset has negative risk? Why would anyone ever invest in an
asset that has an expected and
required return that is negative? Explain
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FIN 571 Week 2 Individual Assignment Business Structure
Advice
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