Question: Clear solutions and methods Problem 3: Capital Asset Pricing Model (17 Points) In a CAPM scenario, the complete market is assumed to only consist of

Clear solutions and methods

Problem 3: Capital Asset Pricing Model (17 Points) In a CAPM scenario, the complete market is assumed to only consist of 3 assets: stock A, stock B, and a risk-free bond. The market is in equilibrium. Yearly return Beta Stock A 9% 0.5 Stock B 14% 1. 125 1. Construct a portfolio from A and B that has a beta of 0. What is the return of the portfolio? (7 points) 2. What is the return of the risk-free rate? Tip: use the security market line. (4 points)

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