The Capital Asset Pricing Model. Lecture XXIV. .Literature. Most of today’s materials comes from Eugene F. Fama and Merton H. Miller The Theory of Finance (Hinsdale, Illinois: Dryden Press, 1972) Chapter 7. The primary literature is:
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The Capital Asset Pricing Model
where mp is the expected return from the portfolio, mi is the expected return on a specific asset, and xi is the level of asset i held in a specific portfolio.
where sp is the standard deviation of a particular portfolio and sij is the covariance between asset i and asset j.
Given that the future value of the firm implies some risk, the rate of return is risky. In addition, given the preceding proof we know that investors value the investment under the capital market equilibrium.