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When it comes to return on investment, there are two dimensions one needs to consider - time and risk. The kind of questions we want an answer for is: for an investment such that I expect payout in this amount of time with these kinds of risks, what kind of return should I expect, or what kind of return does the market demand? If we don't consider risk, say ...


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It means the supply of all securities equals the demand of all securities, so the market clears and is in equilibrium as in standard economics language. Indeed, all investors will hold some combination of the market portfolio and risk-free security and will not deviate from this, assuming the assumptions of the CAPM are satisfied, namely that investors have ...


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Suppose the risk-free rate of return is $R^f$, the rate of return of the portfolio here is $R^p$, and the market return is $R^m$. We know $$\mathbb{E}[R^p-R^f]=0.04+1.4\mathbb{E}[R^m-R^f]$$ If we put \$1 into the portfolio, short \$1.4 the market portfolio, and invest the \$0.4 at the risk-free rate, then the expected wealth will be $$\mathbb{E}[X]=R^f+0.04+...


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I have an actuarial background so I am not too sure if using yield extrapolation is a good way. https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.soa.org/globalassets/assets/files/resources/research-report/2019/yield-curve-report.pdf&ved=2ahUKEwjt3uyRh4DuAhXSa94KHUnDBYsQFjAMegQIFhAB&usg=AOvVaw2R66gNNIbaW05F9y-blu_J They may ...


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I would use SONIA. That's the official RFR for the UK. See this BoE link: https://www.bankofengland.co.uk/markets/transition-to-sterling-risk-free-rates-from-libor


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