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An Analyst Determined That for the Past Two Quarters the Risk-Free

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Essay

An analyst determined that for the past two quarters the risk-free rate has exceeded the return on the market portfolio.Does this information disprove the CML?


Definitions:

Home Currency Approach

A method in international finance where transactions are converted and evaluated in the currency of one's own country.

Net Present Value (NPV)

The calculation of the current value of a series of future cash flows generated by an investment, minus the initial cost of the investment.

International Fisher Effect

A theory stating that the difference in nominal interest rates between two countries is equal to the expected change in the exchange rate between the two countries' currencies.

Absolute Purchasing Power Parity

The concept that, if transportation and transaction charges are eliminated, the price of identical items should be equivalent across countries when converted into a uniform currency.

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