Question: ii. Below you are given the expected returns and standard deviations of L'Oreal and Daimler AG, the Euro Stoxx 50 Index of the largest Eurozone

ii. Below you are given the expected returns and standard deviations of L'Oreal and Daimler AG, the Euro Stoxx 50 Index of the largest Eurozone firms, and the risk-free asset.

Asset Expected Return (%) Standard Deviation (%)

L'Oreal 16 30

Daimler 12 25

Euro Stoxx50 13 12

risk-free asset 3 0

a. Assuming that the returns are explained by the Capital Asset Pricing Model, Calculate the betas of L'Oreal and Daimler and the risk of a portfolio holding L'Oreal and Daimler with an expected return the same as Euro Stoxx 50 Index return. (3 marks) b. Construct a portfiolio consisting of Euro Stoxx 50 Index and risk free asset that will produce an expected return of 12%. Contrast the risk on this portfolio with the risk of Daimler

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