v

^2(rj) ^2(Ej) E(r)

stock x .10 .02 .75 .12

^2 (rM) =(.25)

stock y .30 .03 2.0 .16

(a) Calculate the beta for portfolio consisting of 25% in x AND 75% in y. (10 points) (b) Under the index model, calculate the variance of the portfolio in section (a). (10 points) (c) Suppose the expected market return on the market is 0.11 and the risk-free rate is 0.06. Assuming the simple CAPM is correct, are stock x and y fairly priced? Why or why not? (10 points)

^2(rj) ^2(Ej) E(r)

stock x .10 .02 .75 .12

^2 (rM) =(.25)

stock y .30 .03 2.0 .16

(a) Calculate the beta for portfolio consisting of 25% in x AND 75% in y. (10 points) (b) Under the index model, calculate the variance of the portfolio in section (a). (10 points) (c) Suppose the expected market return on the market is 0.11 and the risk-free rate is 0.06. Assuming the simple CAPM is correct, are stock x and y fairly priced? Why or why not? (10 points)

^2(rj) ^2(Ej) E(r)

stock x .10 .02 .75 .12

^2 (rM) =(.25)

stock y .30 .03 2.0 .16

(a) Calculate the beta for portfolio consisting of 25% in x AND 75% in y. (10 points) (b) Under the index model, calculate the variance of the portfolio in section (a). (10 points) (c) Suppose the expected market return on the market is 0.11 and the risk-free rate is 0.06. Assuming the simple CAPM is correct, are stock x and y fairly priced? Why or why not? (10 points)

^2(rj) ^2(Ej) E(r)

stock x .10 .02 .75 .12

^2 (rM) =(.25)

stock y .30 .03 2.0 .16

(a) Calculate the beta for portfolio consisting of 25% in x AND 75% in y. (10 points) (b) Under the index model, calculate the variance of the portfolio in section (a). (10 points) (c) Suppose the expected market return on the market is 0.11 and the risk-free rate is 0.06. Assuming the simple CAPM is correct, are stock x and y fairly priced? Why or why not? (10 points)