Suppose you can invest in the following stocks B and C: Expected Return Standard Deviation B 10% 20% C 15% 30%

The correlation between stock B and C is 0.5, and the risk-free T-Bill rate is 3%. The MVE portfolio consists of 50% stock B and 50% stock C.

(a) Assume stocks B and C are the only assets in the economy. What is the implied market portfolio according to CAPM? (b) What are the s for the two stocks? (c) Plot the expected returns vs the s (SML). What does the intercept of the SML represent? What does the slope of the SML represent? (d) What are the differences between the SML in part (c) and the CML?