Assume that the market has an expected return of 12% and volatility (risk or standard deviation) of 20%. Suppose the CAPM accurately describes the data one is using. IBM has a 0.90% correlation with the market and 50% volatility. The risk-free rate is 3%.

a. What is the covariance between IBM and the market?

b. What is IBMs beta?

c. What is the expected return on IBM?

d. What percentage of IBMs total variance risk is specific (nonsystematic)?

e. Suppose you want to take only 15% risk on your investment portfolio. What is the best you can do if you invest in only IBM and the risk-free asset?

f. How much better can you do if you add in the market portfolio in part e?