An investor considers investing in a portfolio that only consists of two stocks, A and B....

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An investor considers investing in a portfolio that only consists of two stocks, A and B. Some information about the two stocks is provided below: Stock A B Variance 0.04 0.25 Correlation with Market 0.375 0.300 The covariance between the returns on the two stocks is 0.01 and the variance of the market return is 0.0225. a. What is the market beta of each stock? Suppose that the risk-free rate is 3% and the market risk premium is 6%, what is the expected return of each stock under CAPM? b. The investor tries to form his portfolio in such a way that it achieves minimum variance. What is the market beta of this minimum variance portfolio? An investor considers investing in a portfolio that only consists of two stocks, A and B. Some information about the two stocks is provided below: Stock A B Variance 0.04 0.25 Correlation with Market 0.375 0.300 The covariance between the returns on the two stocks is 0.01 and the variance of the market return is 0.0225. a. What is the market beta of each stock? Suppose that the risk-free rate is 3% and the market risk premium is 6%, what is the expected return of each stock under CAPM? b. The investor tries to form his portfolio in such a way that it achieves minimum variance. What is the market beta of this minimum variance portfolio?

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a To calculate the market beta of each stock we can use the following f... View the full answer