Question
The risk-free rate is 5%, return on the market portfolio M is 12%, and standard deviation of the market portfolio M is 15%. In the
The risk-free rate is 5%, return on the market portfolio M is 12%, and standard deviation of the market portfolio M is 15%. In the context of the CAPM, consider two risky stocks A and B with the following characteristics.
| Stock | Corr. coef. with M | Std. dev |
| A | 0.4 | 30% |
| B | 0.9 | 20% |
1) What are the betas of stocks A and B?
2) What is the expected rate of return on a portfolio C which consists of 25% of stock A and 75% of stock B?
Step by Step Solution
3.36 Rating (162 Votes )
There are 3 Steps involved in it
Step: 1
1 The beta of a stock is a measure of its systematic risk or the extent to which its ret...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Fundamentals of Corporate Finance
Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim
6th Canadian edition
1259024962, 978-1259024962
