In the following, assume that the CAPM is true
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In the following, assume that the CAPM is true

Question 2

In the following, assume that the CAPM is true. You have the following information about the economy:

Asset

Expected return

Standard deviation

Beta

Coeff of Correlation with Market

A

0.090

0.30

0.75

 

B

0.125

0.25

 

0.75

C

0.030

 

 

0.00

a) What is the risk-free rate in this economy?

b) Calculate the expected return of the market portfolio.

c) Calculate the beta of B. 

d) Calculate the standard deviation of the market portfolio.

Hint
StatisticsCapital Asset Pricing Model (CAPM) gives the relationship between the systematic risk and the asset's expected return. It also assumes that the risk-free rate remains constant over the discounting period. It is used throughout the finance, if the risk of those assets and cost of capital is given, for risky securities pricing and then generating expected returns for assets....
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