Stock X, Y, and Z are all part of the S&P 500, or large cap US index. The S&P 500 is considered the market and each stocks beta measures the stocks sensitivity to the. A US ten year bond is a reasonable proxy for the risk free rate. Below is some information on a $400M Portfolio XYZ, which is comprised of Stocks X, Y, and Z

Using the expected total return of each stock using the CAPM/SML, Portfolio XYZ will have an expected return of __________ and __________.

A. 9.2% ; 9.3% of market risk

B. 9.3% ; 9.3% of market risk

C. 9.3% ; less market risk than the S& P 500

D. 9.2% ; the same amount of market risk as the S&P 500

E. 9.3% ; more market risk than the S&P 500

Stock Y 45.61 $ 200.0 $ 0.00% Stock Z 59.50 100.0 2.00% -2 1.50 11.25% 1.50% Stock X Price Per Share ($) Weight in Portfolio XYZ ($M) Dividend Yield Variance of Retums Beta of Stock Expected Total Retum (CAPM) Risk Free Rate (US 10 Yr) 60.92$ 100.0$ 0.00% 3 0.80 6.70% 1.50% 3.60x 1 0 1.00x10A- 2 1.44x10 1.25 9.63% 1.50%