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Suppose the return on an asset as suggested by CAPM is 8%. However, you notice that...

  1. Suppose the return on an asset as suggested by CAPM is 8%. However, you notice that similar assets actively trading in public markets have an annualized return of 11%. Comment on this discrepancy between CAPM and the present realized returns.
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Answer #1

​​​​​​The difference between realized return and CAPM return is referred as ALPHA.

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