Suppose in the market we have stocks A and B, with BA = = 1.5 and BB = 0.5. It is known that the market portfolio has an expected return im 10%, and a variance ou 0.04. Stock A has an expected return a = 14%. = (a) (5 points) Suppose the market portfolio is efficient. Derive the risk-free rate f and the expected return of stock B, PB. (b) (2 points) Suppose the idiosyncratic variance of stock A is 0.11. Derive the variance of return of stock A, o. (c) (8 points) Suppose a new portfolio constructed with stocks A and B is the minimum variance portfolio. The expected return of this portfolio is 7.5% and we know that Ob = o A. Derive PA,B. = Suppose in the market we have stocks A and B, with BA = = 1.5 and BB = 0.5. It is known that the market portfolio has an expected return im 10%, and a variance ou 0.04. Stock A has an expected return a = 14%. = (a) (5 points) Suppose the market portfolio is efficient. Derive the risk-free rate f and the expected return of stock B, PB. (b) (2 points) Suppose the idiosyncratic variance of stock A is 0.11. Derive the variance of return of stock A, o. (c) (8 points) Suppose a new portfolio constructed with stocks A and B is the minimum variance portfolio. The expected return of this portfolio is 7.5% and we know that Ob = o A. Derive PA,B. =