Question: The following table shows risk and return measures for two portfolios. Portfolio Average Annual Rate of Return Standard Deviation Beta R 11% 10% 0.5 Market

The following table shows risk and return measures for two portfolios.

Portfolio Average Annual Rate of Return Standard Deviation Beta
R 11% 10% 0.5
Market portfolio 14% 12% 1.0

The market portfolio has an alpha of 0 and a beta of 1.

- The expected return of the market portfolio is 14%.

- The risk-free rate is 2%.

Under the CAPM framework, when plotting portfolio R on the preceding table relative to SML (security market line), portfolio R lies:

a. On the SML

b. Below the SML

c. Above the SML

d. Insufficient data given

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