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The Standard and Poors (S&P) 500 Index has a mean annual return of about 12%, and a standard deviation of about 20%. (A) The CAPM

The Standard and Poors (S&P) 500 Index has a mean annual return of about 12%, and a standard deviation of about 20%.

(A) The CAPM says you should hold the Value-Weighted Market Portfolio (not the S&P 500). Explain why this is so.

(B) For a portfolio that is half t-bills and half the S&P 500, what is the standard deviation of returns?

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