Capital Market Line Problem Set 7 1. The risk-free asset pays 5 percent, the market portfolio's expected return is 13 percent, and its standard deviation is 35 percent. a. What is the market risk premium? b. What is the market price of risk? c. What is the literal interpretation of your answer to part b? 2. Suppose the market portfolio has an expected return of 15 percent and a standard deviation of 10 percent. The risk-free rate is 5 percent and all of the assumptions of the CML hold. What is the expected return and standard deviation if you invest your wealth: a. entirely in the risk-free asset? b. one-half in the risk-free asset and one-half in the market portfolio? c. all in the market portfolio? d. all in the market portfolio and borrow one-third again as much for additional investment in the market portfolio