Question: Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 275 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 275 shares outstanding, a price per share of $2.95, an expected return of 17% and a volatility (standard deviation) of 27%. Stock B has 230 shares outstanding, a price per share of $5.33, an expected return of 9% and a volatility (standard deviation) of 14%. The correlation between the stock is 0.57. Assume that CAPM holds.

1. What is the expected return on the market portfolio?

2. What is the volatility of the market portfolio?

3. What is the beta of each stock?

4. What is the risk-free rate? Is it a realistic value?

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To answer your questions lets go step by step To find the expected return on the market portfolio we need the weights of each asset in the portfolio In this case we have only two risky assets A and B ... View full answer

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