Course: Business Finance

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 10 percent and a standard deviation of 10 percent. The risk-free rate is 2 percent, and the expected return on the market portfolio is 12 percent. Assume the CAPM holds.

a) What is the slope of the capital market line?

b) If a security has a correlation of 0.4 with the market portfolio and a standard deviation of 60 percent, what is its beta?

c) What is the expected return of the security in part (c)