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Edited: The risk free rate is positive because the factors of production, and the perception of time (from an individual's perspective) are limited. Limited supply of desirable goods such as houses (or limited capacity to make them from land, labour and capital), gives them a positive value in society (versus say air, which is in almost unlimited supply, ...


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A risk free rate is the return rate from investing in an asset that has the lowest risk found in the market. It is a naming convention. The least risky of all returns is labelled as 'risk free' for the purpose of various models and resulting discussions. Another parallel answer is that you must understand what financial risk is in the first place. It is, ...


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That is true. Utility would not be concave anymore under prospect theory (only for gains), but convex for losses, which is evidence against CAPM. CAPM is valid either : -if the utility function is quadratic (which is nonsense in terms of economic interpretation, and in general, Von Neumann- Morgenstern utility describes poorly reality and should be ...



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