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(The following information applies to Questions 3 and 4)​ You observe the following information in a market where the CAPM holds: beta Expected return Annual standard deviation Stock A 1.5 15.0% 0.25 Stock B 1.2 13.2% 0.30 The correlation co

(The following information applies to Questions 3 and 4)

You observe the following information in a market where the CAPM holds:


beta

Expected return

Annual standard deviation

Stock A

1.5

15.0%

0.25

Stock B

1.2

13.2%

0.30

The correlation coefficient between stock A and the market is 60%.

 

Question 3:

Compute the expected return on the market portfolio.

Question 4:

What is the expected return of a portfolio that is split (perhaps unevenly) between the risk-free asset and the market, if this portfolio has a standard deviation of 0.07?


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(The following information applies to Questions 3 and 4)​ You observe the following information in a market where the CAPM holds: beta Expected return Annual standard deviation Stock A 1.5 15.0% 0.25 Stock B 1.2 13.2% 0.30 The correlation co
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