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In a CAPM world of only three risky securities (AAPL, MSFT, GOOG) and one risk-free asset (Rf), you want to construct a market portfolio (M)
In a CAPM world of only three risky securities (AAPL, MSFT, GOOG) and one risk-free asset (Rf), you want to construct a market portfolio (M) using AAPL, MSFT and GOOG with the following information provided.
AAPL | MSFT | GOOG | Rf (the risk-free return) | |
Expected return | 0.16 | 0.34 | 0.28 | 0.02 |
Standard deviation | 0.23 | 0.23 | 0.21 | |
Weights of the Market Portfolio (M) | - 0.13 | 0.69 | 0.44 |
Correlation matrix:
AAPL | MSFT | GOOG | |
AAPL | 1 | ||
MSFT | 0.52 | 1 | |
GOOG | 0.42 | 0.65 | 1 |
Required: [Instruction: Do not round the intermediate answers, and round the final answers to two decimal places, e.g., 0.01]
a. Calculate the expected return and standard deviation of the market portfolio (M).
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