Question: Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 10 % 0 Market 18 1.0 A 16 1.5 a. Calculate the return predicted by

Consider the following information:

Portfolio Expected Return Standard Deviation
Risk-free 10 % 0
Market 18 1.0
A 16 1.5

a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.5.

b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign.)

c. If the simple CAPM is valid, is the situation above possible?

  • Yes

  • No

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