Question
1. The expected rate of return on the market portfolio is 11.50% and the riskfree rate of return is 2.00%. The standard deviation of the
1. The expected rate of return on the market portfolio is 11.50% and the riskfree rate of return is 2.00%. The standard deviation of the market portfolio is 19.75%. What is the representative investors average degree of risk aversion?
2. Stock A has a beta of 1.50 and a standard deviation of return of 32%. Stock B has a beta of 3.50 and a standard deviation of return of 58%. Assume that you form a portfolio that is 45% invested in Stock A and 55% invested in Stock B. Using the information in question 1, according to CAPM, what is the expected rate of return on your portfolio?
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International Financial Reporting A Practical Guide
Authors: Alan Melville
6th edition
1292200743, 1292200766, 9781292200767, 978-1292200743
