Question
A portfolio invests in a risk-free asset and the market portfolio has an expected return of 7% and a standard deviation of 10%. Suppose risk-free
A portfolio invests in a risk-free asset and the market portfolio has an expected return of 7% and a standard deviation of 10%. Suppose risk-free rate is 5%, and the standard deviation on the market portfolio is 22%. For simplicity, assume that correlation between risk-free asset and the market portfolio is zero and the risk-free asset has a zero standard deviation. According to the CAPM, which of the following statement is/are correct?
a. This portfolio has invested roughly 54.55% in the market portfolio
b. This portfolio has a reward to risk ratio that is higher than market average
c. This portfolio beta is roughly 0.5455
d. Market risk premium is roughly 6.6%
e. Statements a and b are both correct
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