Consider a market with three assets (one bond, two stocks) that fulfills the assumptions of CAPM....

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Consider a market with three assets (one bond, two stocks) that fulfills the assumptions of CAPM. The risky returns R₁ and R2 are correlated with P12 1/3 and the following data is known: = R₁ 200 R2 150 shares price μ 50 8% 14% σ 200 12 02 (a) (3pts) Find 2 and σ₂ such that the market portfolio fulfills μM = 14% and σM = 16.5%. (b) (3pts) What is the ẞ of each stock? (c) (2pts) What is the risk-free rate r of the market? (d) (2pts) Is (u, 0) = (22.63%, 17.96%) or (17.96%, 22.63%) on the capital market line? Consider a market with three assets (one bond, two stocks) that fulfills the assumptions of CAPM. The risky returns R₁ and R2 are correlated with P12 1/3 and the following data is known: = R₁ 200 R2 150 shares price μ 50 8% 14% σ 200 12 02 (a) (3pts) Find 2 and σ₂ such that the market portfolio fulfills μM = 14% and σM = 16.5%. (b) (3pts) What is the ẞ of each stock? (c) (2pts) What is the risk-free rate r of the market? (d) (2pts) Is (u, 0) = (22.63%, 17.96%) or (17.96%, 22.63%) on the capital market line?

Answer rating: 100% (QA)

a To find the weights w1 and w2 such that the market portfolio fulfills muM 14 and sigmaM 165 we can use the formula for the expected return and standard deviation of a twoasset portfolio muM w1 mu1 w... View the full answer