Question: Question 1 1.1. You are thinking about a portfolio where you put half your money in stock A and half your money in the risk

Question 1

1.1. You are thinking about a portfolio where you put half your money in stock A and half your money in the risk free asset (like a Treasury bill). The risk free asset has a return of 5%.

a. What is the variance and standard deviation of the risk free asset? (1)

b. What is the covariance between stock A and the risk free asset? (1)

1.2. Using the CAPM and SML, what is the expected rate of return for an investment with a of 1.8, a risk free rate of return of 4%, and a market rate of return of 10%.

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