Question
4) Market risk premium is 10%, market volatility (standard deviation of market return) is 18% and the riskfree rate is 4%. a) What is the
4) Market risk premium is 10%, market volatility (standard deviation of market return) is 18% and the riskfree rate is 4%. a) What is the equation of the SML? (Just write the line formula) b) Suppose risky asset i has a beta of 0.64. Based on CAPM, what is its expected rate of return? c) Risky asset j has a volatility of 55% (standard deviation of its expected return is 0.55) and a correlation with the market portfolio of 23%. What is js expected rate return based on CAPM? d) Risky asset K has a volatility of 77% (standard deviation of its expected return is 0.77) and a correlation with the market portfolio of -30%. What is Ks expected rate return based on CAPM?
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