Calculation of Correlation, Covariance, Portfolio Risk and Returns.

Suppose the returns on the stock fund are as follows:

Return on Stock A Return on Stock B Market Return

$2022-20\%-8\%-10\%$

$2021-22\%12\%12\%$

$202012\%8\%8\mathrm{.}5\%$

$201940\%16\%2\mathrm{.}0\%$

Mean

Std$.$ Dev $($sigma$)$

Correlation

Correlation between A and Market $=$

Correlation between B and Market $=$

Beta from BA II Plus

Please fill in the number in the table above.

Use the formula to calculate for Beta of Stock A

Use the formula to calculate for Beta of Stock B

According to CAPM, what are the returns on stock A and stock B if Tbill rate is $2\mathrm{.}0\%?$

Hint: Using the average return on market as Rm$.$

Draw the security market line

CAPM Return Average Return $($Actual Return$)$ Calculate Positive or Negative Alpha and Identify if stock is

Over or Under Valued Recommendation

Stock A

Stock B