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Suppose that we live in a world of the CAPM. the market portfolio has an expected return of 10% with a volatility of 20%. The
Suppose that we live in a world of the CAPM. the market portfolio has an expected return of 10% with a volatility of 20%. The risk-free rate is 4%. (a) Can you find a portfolio that generates an expected return higher than 8% and a volatility lower than 12%? (1%) (b) Suppose that you invest in the market portfolio today, sell it in a year, and earn 5%. Does this suggest that the CAPM does not hold during my investment? (1%)
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