Problem $8\mathrm{.}13($CAPM$,$ Portfolio Risk, and Return$)$

Question $11$ of $15$

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Problem Walk$-$Through

Consider the following information for stocks A$,$ B$,$ and C$.$ The returns on the three stocks are positively correlated, but they are not perfectly correlated. $($That is$,$ each of the correlation coefficients is between $0$ and $1.)$

$\backslash$table$[[$Stock$,$Expected Return,Standard Deviation,Beta$],[$A$,8\mathrm{.}50\%,16\%,0\mathrm{.}8],[$B$,9\mathrm{.}25,16,1\mathrm{.}1],[$C$,10\mathrm{.}75,16,1\mathrm{.}7]]$

Fund $P$ has one$-$third of its fund $p$ invested in each of the three stocks. The risk$-$free rate is $6\mathrm{.}5\%,$ and the market is in equilibrium. $($That is$,$ required returns equal expected returns.$)$

a$.$ What is the market risk premium $($rM $-$ rRF$)?$ Round your answer to one decimal place.

$\%$

b$.$ What is the beta of Fund P$?$ Do not round intermediate calculations. Round your answer to two decimal places.

$$ c$.$ What is the required return of Fund P$?$ Do not round intermediate calculations. Round your answer to two decimal places.

$\%$

d$.$ What would you expect the standard deviation of Fund P to be$?$

I. Less than $16\%$

II$.$ Greater than $16\%$

III. Equal to $16\%$

$$