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CAPM

PPobeak13y ago
Hi John.

Fantastic work on the F9 lectures. They have been of immense help. I have got a question : Using CAPM, Why would any rational investor want to buy securities with a rate of return less than the risk free market rate?

Cheers
John MoffatJohn MoffatTutor13y ago#1
The return will only ever be less than the risk free rate if the beta of the investment is negative. (When beta = 0 then the return is equal to the risk free rate)

Negative betas are very unusual (and do not happen in the exam) - the only really practical example is shares in gold mines, because gold tends to increase in value as share prices in general fall (and vice versa).
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