Question
Assume that the S&P 500 is the market portfolio and is also the tangency portfolio. The S&P 500 has an expected return of 12%, with
Assume that the S&P 500 is the market portfolio and is also the tangency portfolio. The S&P 500 has an expected return of 12%, with a standard deviation of 25% per year. Apple's stock has an expected return of 16%, with a standard deviation of 40% per year. The risk-free rate is 4%. Assume that CAPM holds for the remainder of this problem.
Is this combination of expected returns and standard deviations possible according to the CAPM? Why or why not?
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Business Forecasting
Authors: John E. Hanke, Dean Wichern
9th edition
132301202, 978-0132301206
