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We assume a stock market where there are only two stocks: stock A and stock B. The table below provides the following information regarding these

We assume a stock market where there are only two stocks: stock A and stock B. The table below provides the following information regarding these two stocks:

Stock A Stock B

Price $10 $20

Shares outstanding 1,000 1,500

Standard deviation 30% 20%

a) What are the weights of each stock in the market portfolio?

b) If the beta of stock A is 1.12, what is the beta of stock B?

c) If the standard deviation of the market portfolio is 19.6%, what is the correlation coefficient, _AB, between the two stocks' returns?

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