You have observed the following returns over time:

Year: Stock X: Market:

2014 18% 14%

2015 6% 8%

2016 23% 12%

Assume that the risk-free rate is 6% and the market risk premium is 5%.

a) What are the expected rates of return on Stock X and the market?

b) What is the standard deviation on Stock X and the market?

c) What is the Beta for Stock X given a correlation to the market of 0.8117? Is Stock X more or less risky than the market?

d) What is the rate of return on a portfolio with 80% Stock X and 20% of Stock Y (where Stock Y has a Beta of 1.5)?