The following is a probability distribution for returns on a security A and a proxy for the market, M. Parts a-i can earn up to one point each except for part, g that earn up to two points.

StateProbabilityr_Ar_M

115%15%12%

235%8%6%

335%4%1%

415%-6%-2%

a) Calculate the expected returns on security A and the market.

e) Given the expected return on the market portfolio as calculated in part (a) and assuming that the risk-free rate for the coming period is 1.2%, calculate the required rate of return on security A according the Capital Asset Pricing Model (CAPM).

1. If you construct a portfolio, P, of the risk-free asset, F, whose return is given in part (e) above and the market such that 20% of your capital is invested in F and the rest is in the market portfolio, what will be your portfolio, P's expected return, standard deviation and Beta?
2. If you construct a portfolio, Q, of asset A and the market portfolio such that 30% of your investment is in A and the rest is in the market portfolio, what will be your portfolio, Q's expected return, standard deviation, and Beta?