portfolio, and the risk-free-asset.

Security	Expected Return	Standard Deviation	Correlation*	Beta
Firm A	.10	.31	(i)	.85
Firm B	.14	(ii)	.50	1.40
Firm C	.16	.65	.35	(iii)
The Market Portfolio	.12	.20	(iv)	(v)
The Risk-Free Asset	.05	(vi)	(vii)	(viii)

*With the market portfolio

Fill in the missing values in the table.

Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)? What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?

Illustrate how the Market Portfolio could be protected from each of the following investment risks by using modern portfolio theory investment characteristics:

Market risk

Default risk

Inflation risk

Mortality risk