In a hypothetical world of a risk-free asset Rf and three risky assets A, B, and C. Suppose the CAPM holds. Answer the required questions with the information about A, B, C, and the market portfolio (M) constructed using them provided in the table below.

 

	Asset A	Asset B	Asset C
Expected return	10%	14%	11%
Standard deviation	15%	20%	16%
Assets' Weights of the Market Portfolio (M)	25.34%	37.29%	37.37%

 

Correlation matrix	Asset A	Asset B	Asset C
Asset A	1
Asset B	0.4	1
Asset C	0.2	0.3	1

 

QUESTIONS - 

1. Calculate the expected return and standard deviation of the market portfolio (M). 

 

1. Calculate the covariances of Asset A, B, C, with the market portfolio (M), respectively. That is, COV(A, M) and COV(B, M). 

Answer rating: 100% (QA)

Expected return of portfolio ErA MA ErB MB ErC MC 10 02534 14 03729 11 03737 118653 SDP WA2 ... View the full answer