Assume the CAPM holds. Stock A has a variance of $0\mathrm{.}04.$ Stock B has a variance of $0\mathrm{.}09.$ The

Sharpe Ratios of the stocks are $0\mathrm{.}4$ and $0\mathrm{.}2$ for A and B respectively.

a$)$ Which stock, A or B$,$ has more systematic risk? Explain. $(2$ marks$)$

Assume that Stock A has a beta of $0\mathrm{.}8$ and risk$-$free rate is $3$ percent.

b$)$ What is the expected return on the market portfolio? $(1$ mark$)$

c$)$ What is the beta of an equally weighted portfolio of A and B$?(1$ mark$)$

d$)$ What correlation coefficient $($between returns to A and returns to B$)$ is required to

generate a Sharpe Ratio of $0\mathrm{.}5$ for the equally weighted portfolio of A and B