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Asset Return% Sd% Beta

A 20 30 1.2

B 0 20 -0.6

C 6 0 0

Market Standard Deviation : 10%

1. What is the market's expected return

2. Now consider Asset B whose expected return is zero. Calculate the correlation between Asset Bs return and the market return. Explain why investors are would hold shares in this company.

3. Now assume that another company ABC , has been taken public. This company is identical to Asset B except for the fact that its correlation with the market portfolio is more negative than the one you calculated in part 2. Would you expect both firms to trade at the same price per share? If not, which company do you think will be priced higher? Why?

4. What is the lowest portfolio Std deviation that has the same return as Asset A?

5. Is the correlation in returns between this portfolio and Asset 1 the same as the correlation between Asset 1 and the market portfolio or lower? Explain