till part d) only

Question 3 For this question, unless otherwise indicated, assume that the CAPM holds. Consider two stocks (A and B) and a risk-free asset with annual return of 3%. The expected returns and standard deviations of returns of the two stocks are given in the following table. The two stocks' return correlation is 0.3. The market expected return is 8%, and the standard deviation of the market return is 20%. Stock A Stock B Expected Return 10% 6% Standard Deviation 50% 40% (a) What is the maximum attainable Sharpe ratio? Explain. (5 marks] (b) What are the betas of stocks A and B? [5 marks] (c) What portfolio achieves an expected return of 10% with the minimum volatility (standard deviation)? [5 marks] (d) If investors are unable to borrow what alternative investment strategy achieves an expected return of 10% at higher volatility than the portfolio in your answer to part (c)? (Assume investors are unable to short sell.) [3 marks] (e) What are the assumptions of the CAPM? What is the only risk priced in the CAPM and how is it mcasured? [7 marks]