Tutorial 8

Question 1

When do we use the SML and when do we use the CML?

Answer 1

CML: When there’s just 1 asset in the portfolio. To determine if it is risk-efficient.

SML: When there’s more than just 1 asset in the portfolio.

Question 2

Always easier to beat the SML than the CML

Answer 2

ok

Question 3

How to know if assets are attractive to hold?

Answer 3

Check if they lie on the security market line. You’ll know if they’re overpriced or underpriced.

SML dire li priced at 13.2 mais li priced at 14 –> undervalued.