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Question 2 (10 marks) Correlation Matrix Securities Expected Return Standard Deviation Google Microsoft Apple Market Portfolio Google 19.2% 36% 1.0 0.7 0.6 0.5 Microsoft 21.9%
Question 2(10 marks)
|
| Correlation Matrix | |||||
|
Securities | Expected Return | Standard Deviation | | Microsoft | Apple | Market Portfolio |
| | 19.2% | 36% | 1.0 | 0.7 | 0.6 | 0.5 |
| Microsoft | 21.9% | 35% |
| 1.0 | 0.5 | 0.6 |
| Apple | 12.0% | 25% |
|
| 1.0 | 0.4 |
| Market Portfolio | 12.0% | 10% |
|
|
| 1.0 |
The risk-free interest rate is 3%.
- Given the correlation matrix, what is the covariance between Google and the Market? (2 marks)
- Given the correlation matrix, what is the beta of Microsoft? (2 marks)
- Show that Microsoft is priced according to the CAPM. (2 marks)
- What is the expected return and volatility of a portfolio that consists of a long position of $10,000 in Microsoft and a short position of $2,000 in Apple? (4 marks)
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