zero beta portfolio
I understand that conceptually, a zero beta portfolio is one that should have no correlation with the market portfolio. What else does one need to know / should one know beyond that with respect to a zero beta portfolio? It seems one can simply substitute that in for the risk free rate in the CAPM equation, but I have a few questions on point (Schweser study notes are not helpful to me on this one):
1. What does a zero beta portfolio have to do with making an assumption about being able to borrow and lend at the same rates?
2. Schweser: “As long as the expected return on the zero beta portfolio is assumed to be greater then the risk free lending rate, the resulting security market line will have a smaller risk premium (ie a flatter slope)” Huh?
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