- = 2. CHAPTER 7 - QUESTION 10 - LITTLE WORLD CAPM Suppose there are only two risky assets with expected return ii = 0.1, T2 = 0.2 and covariances o = 0.04, o = 0.09, 012 = 0.09, 012 = 0.03. The current risk free rate is 0.05. (a) Find the one fund for this small market. (b) Now suppose that there is a new project with an expected payoff Q = 10 and covari- ances oa = 25, CQ,1 = 0.8, 09,2 = 0.15. Using the one fund as the market portfolio, what is the price of this project according to CAPM? = = , =