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Future economic conditions and consequent actions taken by the Federal Reserve have resulted in higher...

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Accounting

Future economic conditions and consequent actions taken by the Federal Reserve have resulted in higher treasury yields. Suppose that the 3-month T-bill yield (risk-free rate) is now 1.50% (the expected market risk premium is unchanged at 8%).

4. How do the new economic conditions impact the security market line? In what direction would CalPERS have to move along the security market line (up, down, or unchanged) if it is to maintain an expected return of 8%. Explain why.

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