Consider a market described by the table below: Stock Price Issued Stocks Covariance with M A...

  

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Consider a market described by the table below: Stock Price Issued Stocks Covariance with M A 42 1,000 1,200 0.0657 В 40 0.0793 C 120 500 0.0406 rf = 3%. Assume that the market is in a CAPM equilibrium. a. Derive the CAPM B of stocks A, B and C. b. The expected return on stock B, E(rB) = 10.93%. What are the expected returns on stock A, E (rA), stock C, E(r.) and the market portfolio, E (rm)? Show that the reward-to-risk (using covariance with market as risk) ratios are in parity in a CAPM equilibrium. с. d. Construct a portfolio which has 30% in the risk-free asset and the highest possible Sharpe ratio (i.e. which sits on the Capital Market Line). What would be the portfolio's Expected Return E(rp), Standard Deviation ( o p), Sharpe Ratio, B, and weighting in each stock? e. Plot the Security Market Line showing where stocks A, B and C sit in relation to it. Consider a market described by the table below: Stock Price Issued Stocks Covariance with M A 42 1,000 1,200 0.0657 В 40 0.0793 C 120 500 0.0406 rf = 3%. Assume that the market is in a CAPM equilibrium. a. Derive the CAPM B of stocks A, B and C. b. The expected return on stock B, E(rB) = 10.93%. What are the expected returns on stock A, E (rA), stock C, E(r.) and the market portfolio, E (rm)? Show that the reward-to-risk (using covariance with market as risk) ratios are in parity in a CAPM equilibrium. с. d. Construct a portfolio which has 30% in the risk-free asset and the highest possible Sharpe ratio (i.e. which sits on the Capital Market Line). What would be the portfolio's Expected Return E(rp), Standard Deviation ( o p), Sharpe Ratio, B, and weighting in each stock? e. Plot the Security Market Line showing where stocks A, B and C sit in relation to it.