Consider an investment market: the risk-free rate of return on Treasury bills is 5% pa the expected return on the market as a whole is 9% pa the standard deviation of the return on the market as a whole is 31% pa the assumption of the capital asset pricing model (CAPM) hold.

Suppose an investor constructed an efficient portfolioZ that consists entirely of Treasury bills and non-dividend-paying shares, there being no other types of investment, and this efficient portfolio Z yields an expected return of 8% pa.

i. Calculate the market price of risk;

ii. What is the portfolio Z's beta?

iii. Calculate the standard deviation of returns for the efficient portfolio Z;

1. iv. Split the total standard deviation for the portfolio Z into the amounts attributable to systematic risk and specific risk

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Question i Calculate the market price of risk The market price of risk is also known as the beta premium It is the additional return that an investor ... View the full answer