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2

Although Rf can be negative (but not too negative), Rm cannot be less than Rf as in your example. It is a non-equilibrium situation, no one would invest in risky securities if they have an expectation lower than risk-free securities. So Rm > Rf is a necessary assumption of the CAPM, whether rates are positive or negative. Also, algebra is algebra and the ...

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The risk free rate can be viewed as the opportunity cost to hold an investment i.e. Every risky investment should at least pay out the risk free rate. This is why you subtract the Rf from the Rm When yields are negative you would have to add the Rf to Rm meaning you should expect to earn a much lower return [everything else held constant]: CAPM1= negative ...

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In the first case, you are not compounding well your interest. It will be: 400*((1+8%)^(3/4)-1)=423.76. As it is coumpounded quarterly, and you want the third quarter. In the second, I think is misspelling. They just want you to round the solution to 3 decimals, so change : for . (decimal point).

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This is just basic mathematics. Simplify to two business lines just to make the point more transparent. Suppose you have two business lines with initial values $X_0, Y_0$ and terminal values $X_T, Y_T$. Then the sum of the initial values are $X_0 + Y_0$ and the terminal values are $X_T + Y_T$. Let the projected $T+1$ values be \$X_{T+1}, Y_{T+1}, ...

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Volatility is a difficult object and it is not always clear what we mean when we use the word volatility. I would make the following distinction as a first step: historical volatility: measuring the ex-post volatility of an asset/market/sector. You pick an observation period of interest (e.g. 3 months up to 3 years). You pick a frequency (often daily or ...

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In the very begining I advice you to model always linear effects in the time series (ARMA models). Then you add a model which investigate ARCH effects (GARCH family). When you have done the models estimation part It is advised to check if residuals of the models do not show any dependiencies ( close to normal distribution, independent). In another step you ...

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