Question: Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 200 shares outstanding, a price per share

Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 10% and a volatility of 30%. Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 5% and a volatility of 15%. The correlation coefficient between A and B is 0.6. Assume CAPM holds. 1. What is expected return of the market portfolio?

2. What is volatility of the market portfolio?

3. What is the beta of each stock?

4. What is the risk-free rate?

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