Expected Return: 9.60%

Standard Deviation: 20.46%

1. If the systematic volatility of Coke is 6.4%, what is the risk-free rate of the economy?

2. What is the idiosyncratic risk of IBM?

2. The following table provides information on the expected return, standard deviation and correlation matrix of three securities: Coke, IBM, and Bose. Bose Coke IBM Bose Correlation matrix Coke IBM 1 0 1 0.1 0.4 Expected return and volatility E(R) SD(R) Coke 8.4% 15% IBM 14% 30% Bose 11.6% 25% 1 It is also known that the expected return of the market is 10% and its standard deviation is 8%