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Assets with Negative Risk

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Suppose Rf is 5% and Rm is 10%. According to the SML and the CAPM, an asset with a beta of -2.0 has a required return of negative 5% [=5-2(10-5)]. Can this be possible and does this means the asset has negative risk?

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Solution Summary

The solution discusses if an asset can have a negative risk with negative beta and negative required rate of return.

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Suppose Rf is 5% and Rm is 10%. According to the SML and the CAPM, an asset with a beta of -2.0 has a required return of negative 5% [=5-2(10-5)]. ...

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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