alleryStart learning →In Black's zero-beta CAPM, what replaces the risk-free rate?
AYield on long government bonds
BAverage dividend yield
CReturn on the market index
DReturn on a zero-beta portfolio
Answer & Solution
Correct answer: D. Return on a zero-beta portfolio
Black's model uses the return of a portfolio with no correlation to the market in place of a riskless rate.
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