chandsingh

this is very tricky but a question cfai would love to put on.


if rfr = 5% and beta = 1.

5 + 1(10-5) = 10

if rfr +1:

6 + 1(10-6) = 10


so no effect.

if beta is higher than 1 then the new E(r) is lower and if beta is lower than 1 the new E(r) is higher.