Question: Stock Average Return St Dev Corr Coefficient Beta GM 1.5% .098 .71 1.23 F 1.4% .097 .71 1.05 1. Assume all you know is each

Stock	Average Return	St Dev	Corr Coefficient	Beta
GM	1.5%	.098	.71	1.23
F	1.4%	.097	.71	1.05

1. Assume all you know is each companys beta, and that the market risk premium is 5.50% and the risk-free rate is 0.04% (using the 3-month T-bill yield as the risk-free proxy). Using the Capital Asset Pricing Model (CAPM), what is the expected return for each company?

2. How does the correlation coefficient of the two stocks impact the standard deviation of your portfolio? Would a positive or negative correlation drive the risk of your portfolio up, and why?

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