Problem 4 CAPM The stock Cartman Inc has an expected return of 10 and volatility of 15 in a country where the risk free rate is 1 and the expected return of the market portfolio is 6 The variance of the market portfolio is 50 ( 2 ) You assume that the expected return of this security is in line with the CAPM Determine the securitys Beta Determine the securitys correlation with the return of the market portfolio You have two additional stocks Kenny Ltd and Stan Inc , with a Beta of 0 6 and 1 5, respectively What is the Beta and the expected return of an equally weighted portfolio investing in the three stocks (i e , Cartman Inc , Kenny Ltd , and Stan Inc ) Which of the three stocks would you define as a defensive stock Why Note Show your results using 2 decimal places

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Question: Problem 4: CAPM The stock Cartman Inc. has an expected return of 10% and volatility of 15% in a country where the risk-free rate is

Problem 4: CAPM

The stock Cartman Inc. has an expected return of 10% and volatility of 15% in a country where the risk-free rate is 1% and the expected return of the market portfolio is 6%. The variance of the market portfolio is 50 (%²). You assume that the expected return of this security is in line with the CAPM.

Determine the securitys Beta
Determine the securitys correlation with the return of the market portfolio
You have two additional stocks: Kenny Ltd. and Stan Inc., with a Beta of 0.6 and 1.5, respectively. What is the Beta and the expected return of an equally weighted portfolio investing in the three stocks (i.e., Cartman Inc., Kenny Ltd., and Stan Inc.)?
Which of the three stocks would you define as a defensive stock? Why?

Note: Show your results using 2 decimal places.

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