Asset	Beta	E[R]
1	0.5	0.1	0.30
2	1.5	0.2	0.15

A. Is the situation described in the table below possible in equilibrium, i.e., does CAPM hold in this case? Assume that the standard deviation of the return on the market portfolio, M, is 0.2.

(contd) B. Assume that CAPM holds and you have the following data for two securities, A and B (unrelated to asset 1 and asset 2 in part A):

Asset	Beta
A	0.5	0.30
B	1.5	0.15

The risk free rate of return is 5%, expected return on the market portfolio is 10%, and the correlation between the return on A and the return on B is -0.2. Assume that the standard deviation of the return on the market portfolio, M, is 8%.

B1. Find the composition of the minimum variance portfolio constructed of only A and B.

B2. Find the exact composition of the best (i.e., mean-variance efficient) portfolio that has the same expected return as the minimum variance portfolio from part B1?

B3. Find the standard deviation of the best portfolio from part B2

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