Suppose the risk-free return is 2% and the market portfolio has an expected return of 10% and a standard deviation of 25%. Actuant stock has a beta of 1.45 and a correlation with the market of 0.65.

a. What is the volatility Actuant stock?

b. What is the expected return on Actuant stock? (Hint: Assuming Actuant is correctly priced, its expected return [] is equal to the required return from the CAPM, R capm.)

c. Can you form a portfolio consisting of only the risk-free asset and the market portfolio, that has the same expected return as Actuant? What is the weight on the risk-free asset and what is the weight of the market portfolio?

d. What is the standard deviation of the portfolio from part c?

e. What is the Sharpe ratio of Actuant stock? What is the Sharpe ratio of the portfolio from part c? What is the Sharpe ratio of the market portfolio?

f. Is the portfolio invested 100% in Actuant stock efficient? Is the portfolio from part c efficient?

g. What is the beta of the portfolio from part c?