Question: Suppose the standard deviation of the returns on the market portfolio is 15%. Stock XYZ has an expected return of 14%. The covariance between the

Suppose the standard deviation of the returns on the market portfolio is 15%. Stock XYZ has an expected return of 14%. The covariance between the returns on XYZ and those on the market portfolio is 0.0279. The expected return on stock ABC is 15.5% with a standard deviation of 24%. Further, we are given that 81% of ABC’s risk is undiversifiable and that ABC is positively correlated with the market. Assuming that the CAPM holds, work out the risk premium on the market portfolio.

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