# Question: Every investor in the capital asset pricing model owns a

Every investor in the capital asset pricing model owns a combination of the market portfolio and a riskless asset. Assume that the standard deviation of the market portfolio is 30% and that the expected return on the portfolio is 15%. What proportion of the following investor’s wealth would you suggest investing in the market portfolio and what proportion in the riskless asset?

(The riskless asset has an expected return of 5%)

a. An investor who desires a portfolio with no standard deviation.

b. An investor who desires a portfolio with a standard deviation of 15%.

c. An investor who desires a portfolio with a standard deviation of 30%.

d. An investor who desires a portfolio with a standard deviation of 45%.

e. An investor who desires a portfolio with an expected return of 12%.

(The riskless asset has an expected return of 5%)

a. An investor who desires a portfolio with no standard deviation.

b. An investor who desires a portfolio with a standard deviation of 15%.

c. An investor who desires a portfolio with a standard deviation of 30%.

d. An investor who desires a portfolio with a standard deviation of 45%.

e. An investor who desires a portfolio with an expected return of 12%.

## Answer to relevant Questions

The following table lists returns on the market portfolio and on Microsoft, each year from 1989 to 1998. a. Estimate the covariance in returns between Microsoft and the market portfolio. b. Estimate the variances in returns ...The following table summarizes the annual returns you would have made on two companies—Scientific Atlanta, a satellite and data equipment manufacturer, and AT&T, the telecomm giant, from 1988 to 1998. a. Estimate the ...You have collected returns on AnaDone, a large diversified manufacturing firm, and the NYSE index for five years: a. Estimate the intercept (alpha) and slope (beta) of the regression. b. If you bought stock in AnaDone today, ...Boise Cascade also had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%. a. Assuming that the current beta of 0.95 for the stock is a reasonable one, ...Novell, which had a market value of equity of $2 billion and a beta of 1.50, announced that it was acquiring WordPerfect, which had a market value of equity of $1 billion and a beta of 1.30. Neither firm had any debt in its ...Post your question