Currently, the market return is 12%, and the risk-free rate is at 5%. There are a number of portfolios in which you are considering investing. Using the following information, provide an answer for the next 4 questions.

Investment (Beta):

A (1.3)

B (1.0)

C (0.70)

D (0.0)

E (2.5)

Which investment is most risky? Least risky? Explain your reasoning and back up your explanation with research.
Use the capital asset pricing model to find the required return on each of the investments.
Using your findings in part 2, draw the security market line.
On the basis of your findings in part 3, what relationship exists between risk and return? Carefully explain.
Consider a portfolio composed of investments A to E, with equal shares (i.e., 20% each one). What would be the beta of that portfolio?

Answer rating: 100% (QA)

To determine the most and least risky investments among A B C D and E we can consider their beta values Beta measures the systematic risk of an invest... View the full answer