0.4.3 Capital asset pricing model (b) Suppose the market is expected to pay out 15% with a standard deviation of 8%. Borrowing rate is 5%. Write down the precise expression for the Capital Market Line (including Sharpe ratio) and for the Security Market Line (including beta). (c) If investor A invests by borrowing an additional amount equal to 50% of her initial amount of investment money she sets aside, what is her portfolio's expected return and standard deviation? If part of her portfolio consists of a mutual fund that is expected to pay 10%, can we tell how much is the mutual fund return's standard deviation? (d) Suppose you work for an investment company and currently are working on an IPO (i.c.. initial public offering) project. What are the necessary steps for evaluating the optimal price of that IPO? 10 (e) Many stocks had their prices fell dramatically in 2001. Such observation in itself is evidence that the CAPM is false. Evaluate this statement