Question

6. (25 pts) Suppose a financial market that have only two risky assets, stocks A and B, whose details are given in the following table. Assuming that this market satisfies the CAPM, and there exists a risk-free asset, answer the following questions. | | Number of shares outstanding | Price per share | Expected rate of return | Standard deviation of return | Correlation between returns | | :--- | :--- | :--- | :--- | :--- | :--- | | Stock A | 100 | $15 | 15% | 15% | 1/3 | | Stock B | 150 | $20 | 12% | 9% | | (a) (5 pts) Find i) the expected rate of return and ii) the standard deviation of return of the market portfolio (b) (5 pts) Find the ?'s of stocks A and B (c) (5 pts) Find the risk-free rate (d) (5 pts) What is the slope of the capital market line? (e) (5 pts) Suppose you have an investment opportunity whose standard deviation 50%. What is the minimal level of mean return for you to choose this investment?

          6. (25 pts) Suppose a financial market that have only two risky assets, stocks A and B, whose details are given in the following table. Assuming that this market satisfies the CAPM, and there exists a risk-free asset, answer the following questions.

| | Number of shares outstanding | Price per share | Expected rate of return | Standard deviation of return | Correlation between returns |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Stock A | 100 | $15 | 15% | 15% | 1/3 |
| Stock B | 150 | $20 | 12% | 9% | |

(a) (5 pts) Find i) the expected rate of return and ii) the standard deviation of return of the market portfolio
(b) (5 pts) Find the ?'s of stocks A and B
(c) (5 pts) Find the risk-free rate
(d) (5 pts) What is the slope of the capital market line?
(e) (5 pts) Suppose you have an investment opportunity whose standard deviation 50%. What is the minimal level of mean return for you to choose this investment?

6. (25 pts) Suppose a financial market that have only two risky assets, stocks A and B, whose details are given in the following table. Assuming that this market satisfies the CAPM, and there exists a risk-free asset, answer the following questions.

| | Number of shares outstanding | Price per share | Expected rate of return | Standard deviation of return | Correlation between returns |
| :— | :— | :— | :— | :— | :— |
| Stock A | 100 | 15 | 15% | 15% | 1/3 |
| Stock B | 150 |20 | 12% | 9% | |

(a) (5 pts) Find i) the expected rate of return and ii) the standard deviation of return of the market portfolio
(b) (5 pts) Find the ?'s of stocks A and B
(c) (5 pts) Find the risk-free rate
(d) (5 pts) What is the slope of the capital market line?
(e) (5 pts) Suppose you have an investment opportunity whose standard deviation 50%. What is the minimal level of mean return for you to choose this investment?

Added by Matthew M.

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