Question
Assume the CAPM is the correct asset pricing model, the risk-free rate of return is 6%, and the market portfolio has an expected return and
Assume the CAPM is the correct asset pricing model, the risk-free rate of return is 6%, and the market portfolio has an expected return and a standard deviation of 16% and 0.10%, respectively. An investor has a portfolio consisting of asset A, which has a beta of 0.75, and asset B, which has a beta of 1.25. If the investor wishes to earn a return identical to that of the risk-free asset, what weight should the investor place in assets A and B?
-60% in asset A and 160% in asset B
0% in asset A and 100% in asset B
200% in asset A and -100% in asset B
250% in asset A and -150% in asset B
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