Assume that A and B are two portfolios that lie on the SML with
$\mu_A = 6\%$
$\mu_B = 12\%$
$\beta_A = 0.5$
$\beta_B = 1.5$
$\sigma_A = 8\%$
$\sigma_B = 15\%$
Assume that $\sigma_M = 10\%$.
1. Derive the SML.
2. Suppose there is a portfolio C with $\beta_C = 2$ and $\mu_C = 14\%$. What can we conclude? Why is this information useful?
3. Determine the quantity of systematic risk in A, B, and M, respectively.
4. Determine whether A and B are efficient portfolios.