(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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