1 Which of the following is needed to derive the efficient frontier?

Check All That Apply

• The forecasted rate of return on each risky asset under considerationThe forecasted rate of return on each risky asset under consideration

• The forecasted standard deviation of each risky asset under considerationThe forecasted standard deviation of each risky asset under consideration

• The current T-bill yield

• The forecasted correlation coefficient between each pair of risky securities under considerationThe forecasted correlation coefficient between each pair of risky securities under consideration

• The investors risk aversionThe investors risk aversion

2 The regression analysis of stock A using the single index model shows the following results:

R_A = 0.01 +0.6R_M +e_A , R² =45%

The standard deviation of the market index is 35%. What is the standard deviation of the stock A ? ____% (round your answer to two decimal places, without % symbol)

3

According to the CAPM, what is the market risk premium given an expected return on a fairly priced security of 17.3%, a stock beta of 0.9, and a risk-free interest rate of 11%?

Multiple Choice

• 4.95%

• 11.00%

• 9.90%

• 7.00%