• Stock A has an expected return of 10% and standard deviation of 20%. Stock B has an expected return of 20% and standard deviation of 10%. This seems to violate the principle that higher risk should imply higher expected return. Yet according to the CAPM, the risk and return of stock A and stock B are possible. How?
• Consider two risky assets. When, if ever, is it possible to combine the two assets into a risk-free portfolio?