ii. Below you are given the expected returns and standard deviations of L'Oreal and Daimler AG, the Euro Stoxx 50 Index of the largest Eurozone firms, and the risk-free asset.

Asset Expected Return (%) Standard Deviation (%)

L'Oreal 16 30

Daimler 12 25

Euro Stoxx50 13 12

risk-free asset 3 0

a. Assuming that the returns are explained by the Capital Asset Pricing Model, Calculate the betas of L'Oreal and Daimler and the risk of a portfolio holding L'Oreal and Daimler with an expected return the same as Euro Stoxx 50 Index return. (3 marks) b. Construct a portfiolio consisting of Euro Stoxx 50 Index and risk free asset that will produce an expected return of 12%. Contrast the risk on this portfolio with the risk of Daimler