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5. You have been provided the following data on the securities of three firms and the market: Ri= expected rate of return on asset i.
5. You have been provided the following data on the securities of three firms and the market: Ri= expected rate of return on asset i. i= the standard deviation of the rate of return on asset i. Corr(Ri,RM)= correlation between the rate of return on asset i and the rate of return on the market. Betai= beta of asset i. Assume the CAPM and the SML hold. a) Fill the missing values in the table. b) Provide a valuation of the investment performance of the three firms. c) Using the above information, draw the SML and identify the three firms and the market portfolio on the graph. d) What is your investment recommendation? Why? 5. You have been provided the following data on the securities of three firms and the market: Ri= expected rate of return on asset i. i= the standard deviation of the rate of return on asset i. Corr(Ri,RM)= correlation between the rate of return on asset i and the rate of return on the market. Betai= beta of asset i. Assume the CAPM and the SML hold. a) Fill the missing values in the table. b) Provide a valuation of the investment performance of the three firms. c) Using the above information, draw the SML and identify the three firms and the market portfolio on the graph. d) What is your investment recommendation? Why
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