Consider an individual asset, with random holding period return \(r_{i}\), and the market portfolio, with corresponding return \(r_{M}\). We describe uncertainty by five discrete scenarios, as in the following table:

- Assuming that CAPM holds, find the risk-free return.
- Does the result look sensible? If not, how can you explain the anomaly?

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Scenario Probability T(w) FM(w) W1 0.2 0.03 0.09 33 W2 0.2 0.17 0.16 0.3 0.28 0.10 WA 0.2 0.05 0.02 W5 0.1 -0.04 0.16