d. Consider a well-diversified portfolio composed of stocks with the same beta and standard deviation as Tesla. What are the beta and standard deviation of this portfolio’s return?

The standard deviation of the market portfolio’s return is 20%.

e. Use the capital asset pricing model to estimate the expected return on each stock.

The risk-free rate is 4%, and the market risk premium is 8%.

270 Part Two Risk

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−

−

−

−

−

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− −   

 = 0.43

 = 12.0%

−

−

−

−

−

−

−

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− −   

 = 0.65

 = 42.1%

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−

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− −   

 = 1.38

 = 24.9%

Coca Cola General Motors Tesla

◗ FIGURE 9.4