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The following table shows risk and return measures for two portfolios. Portfolio Average Annual Rate of Return Standard Deviation Beta R 11% 10% 0.5 Market
The following table shows risk and return measures for two portfolios.
Portfolio | Average Annual Rate of Return | Standard Deviation | Beta |
R | 11% | 10% | 0.5 |
Market portfolio | 14% | 12% | 1.0 |
The market portfolio has an alpha of 0 and a beta of 1.
- The expected return of the market portfolio is 14%.
- The risk-free rate is 2%.
Under the CAPM framework, when plotting portfolio R on the preceding table relative to SML (security market line), portfolio R lies:
a. On the SML
b. Below the SML
c. Above the SML
d. Insufficient data given
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