Question: 2. Suppose that the expected return and standard deviation of the market portfolio are im = 0.05 and om 0.1, and the riskfree rate is

2. Suppose that the expected return and standard deviation of the market portfolio are im = 0.05 and om 0.1, and the riskfree rate is ry = 0.01. A stock has correlation with the market portfolio of 0.5 and standard deviation of 0.2. (a) Derive its expected return under CAPM. (b) What is the standard deviation of an efficient portfolio with the same return? (c) What portfolio shares of the risk free asset and market portfolio do you need to hold to get this return? 2 Trol

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