Assume that the expected return and risk of the market portfolio are $$M $=7\%$ and

$\backslash$sigma M $=10\%,$ and the risk$-$free return is R $=4\%.$ Consider two portfolios V and P with expected

returns $$V and $$P $,$ and risks $\backslash$sigma V and $\backslash$sigma P $.$

a$)(8$ points$)$ You have estimated that $$V $=6\%,$P $=9\%,\backslash$beta V $=0\mathrm{.}8$ and $\backslash$beta P $=1\mathrm{.}5.$ Which of

the two portfolios is a better investment according to the CAPM?

b$)(7$ points$)$ Assuming that $(\backslash$sigma V $,$V $)=(5\%,5\mathrm{.}5\%)$ and $(\backslash$sigma P $,$P $)=(15\%,8\%),$ for each of the

portfolios V and P determine if it lies on the Capital Market Line