You are given the following data on the market portfolio, risk-free asset, and stocks A and B: Risk-free Market portfolio Stock A Stock B Mean return, E[r] 0.01 0.06 Std. deviation, o 0 0.18 0.20 0.35 The correlation matrix is given below Market Stock A Stock B Market 1.0 Stock A 0.4 1.00 Stock B 0.9 -0.8 1.00 a) What are the betas of stocks A and B? b) What are the expected returns on stocks A and B according to the CAPM? c) Compute the composition of a risky portfolio of stocks A and B that has the same variance as the market portfolio. Which portfolio would you choose if you wanted to get the same variance as that of the market portfolio? 3 d) Compute the Sharpre ratio of the portfolio that you choose in question c) and the Sharpe ratio of the market portfolio. e) What can you conclude about the efficiency of the market portfolio? You are given the following data on the market portfolio, risk-free asset, and stocks A and B: Risk-free Market portfolio Stock A Stock B Mean return, E[r] 0.01 0.06 Std. deviation, o 0 0.18 0.20 0.35 The correlation matrix is given below Market Stock A Stock B Market 1.0 Stock A 0.4 1.00 Stock B 0.9 -0.8 1.00 a) What are the betas of stocks A and B? b) What are the expected returns on stocks A and B according to the CAPM? c) Compute the composition of a risky portfolio of stocks A and B that has the same variance as the market portfolio. Which portfolio would you choose if you wanted to get the same variance as that of the market portfolio? 3 d) Compute the Sharpre ratio of the portfolio that you choose in question c) and the Sharpe ratio of the market portfolio. e) What can you conclude about the efficiency of the market portfolio