Assume that the assumptions of the CAPM hold. The expected return and the standard deviation of the market portfolio are 7% and 14%, respectively. There are two individual stocks A and B:

Mean Return A: 4% Standard Deviation A: 18%

Mean Return B: 12% Standard Deviation B: 36%

Stock A has a correlation of 0.2 with the market portfolio.

A.What is the beta of stock A?

B.What is the risk free rate?

C.What is the beta of a portfolio with 40% in stock A and 60% in stock B?

D.What is the idiosyncratic volatility of the portfolio from part C?