Question: Show that B is priced according to the CAPM. b) Suppose the risk-free rate is 5%. How much of security F is included in the

Show that B is priced according to the CAPM.

b) Suppose the risk-free rate is 5%. How much of security F is included in the market portfolio M? Briefly explain.

You have information on several possible investments, as laid out in the

You have information on several possible investments, as laid out in the table below. A, B, and C are individual risky securities. For now, assume these are the only 3 risky investments that comprise the market. F is the risk-free asset. M is the market portfolio. All returns are annual returns. Investment E(r) A B C F M Correlation Matrix C 0.6000 1.0000 0.5000 1.0000 A B 1.0000 0.7000 F 0.0000 0.0000 0.0000 1.0000 19.20% 36% 21.90% 35% 12.00% 25% 0% 3.00% 12.00% 10% Answer the following questions with respect to this investment information. M 0.5 0.6 0.4 0.0 1.0

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