(Bonus 1 pt, do this problem only when you are done with the others.)

Use this information for the following 4 questions.

Consider a very simple world in which there are only two risky stocks, A and B, and a risk-free asset F. Details for stocks A and B are listed in the following table.

StockSharesoutstandingPrice/ShareExp.returnStd. dev.

A100$1.5015%15%

B150$2.0012%9%

The correlation coefficient between returns on stocks A and B is 1/3. Assuming that CAPM holds:

a) What is the expected rate of return of the market portfolio? Hint: The market portfolio has the form M= w_A*A+ w_B*B. Find portfolio weights w_Aand w_Bfirst.(1pt, Answer format: 14.20, in percent, but include no % symbol, round to 2 digits.)

b)What is the standard deviation of the market portfolio?(1pt, Answer format: 14.20, in percent, but include no % symbol, round to 2 digits.)

c) What is the beta of stock A? Hint: Note that Cov(r_M, r_A)= w_A*Cov(r_A, r_A)+ w_B*Cov(r_B, r_A).(1pt, Answer format: 1.20, round to 2 digits.)

d) What is the risk-free rate? Hint: Apply SML to stock A.(1pt, Answer format: 14.20, in percent, but include no % symbol, round to 2 digits.)