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Question 5: CAPM (20pt) Consider a simple financial market with the following two risky assets Stock A Stock B # shares Price per Share 400
Question 5: CAPM (20pt) Consider a simple financial market with the following two risky assets Stock A Stock B # shares Price per Share 400 $50 1.000 $80 u o 10% 15% 16% 20% Suppose the correlation between the two stocks is 0.5. Use the above information to answer the following questions. Suppose the CAPM holds. (a) (3pt) What is the total market value? Calculate weights w and we in the market portfolio. (b) (2pt) What are the expected value and the variance of the market portfolio's return? (c) (6pt) What are the beta's for both stocks? Question 5: CAPM (20pt) Consider a simple financial market with the following two risky assets Stock A Stock B # shares Price per Share 400 $50 1.000 $80 u o 10% 15% 16% 20% Suppose the correlation between the two stocks is 0.5. Use the above information to answer the following questions. Suppose the CAPM holds. (a) (3pt) What is the total market value? Calculate weights w and we in the market portfolio. (b) (2pt) What are the expected value and the variance of the market portfolio's return? (c) (6pt) What are the beta's for both stocks
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