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Relationship between risk and expected return

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1. The relationship between risk and expected return is typically described as linear (e.g. the Security Market Line or SML). What is the relationship in terms of the slope of the SML? Why is this important?

2. A conservative investment advisor foresees a downturn in the economy and recommends low risk investments. An aggressive investor has a very positive outlook and recommends taking a higher risk. What advice do you take? Discuss the effect of the advice received on your long term asset allocation.

Reference no: EM131542741

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