a. Consider the following data on the returns of the following firms. Fill in the blanks on the following table assuming that CAPM holds. Standard Deviation Beta Expected return of Return Firm A .252 Firm B .35 Firm C .40 Market .30 Risk-free Bond 04 The correlation between the returns on Firm A and Firm B is .45. Consider a portfolio in which you invest $25,000 in the stock of Firm A and $75,000 in the stock of Firm B. Using the data from part a. above, fill in the following table. Expected Return on the portfolio: Beta of the portfolio: Variance of the portfolio return: Sharpe Ratio of the portfolio: If you can also invest at the risk-free rate, which risky portfolio would you prefer to have as your risky portfolio: the portfolio of A and B or the market portfolio? Explain why. 2 Which of the two firms A or B has greater correlation with the market? Explain why. EL