The risk-free rate is 5%, return on the market portfolio M is 12%, and standard deviation of the market portfolio M is 15%. In the context of the CAPM, consider two risky stocks A and B with the following characteristics.

Stock	Corr. coef. with M	Std. dev
A	0.4	30%
B	0.9	20%

 

1) What are the betas of stocks A and B?

 

2) What is the expected rate of return on a portfolio C which consists of 25% of stock A and 75% of stock B?

Answer rating: 100% (QA)

1 The beta of a stock is a measure of its systematic risk or the extent to which its ret... View the full answer