4. Consider a CAPM economy. The risk free rate (rf) is 3% and the expected market...

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4. Consider a CAPM economy. The risk free rate (rf) is 3% and the expected market return (™M) is 11%. Compute the expected return of the following stocks or portfolios. Total: 20 marks. (a) Stock 1: B = 0.80. (5 marks) (b) Stock 2: B = 1.20. (5 marks) (c) Portfolio 1: The proportions invested in stock 1, stock 2, and risk free asset are 40%, 40%, and 20%, respectively. (5 marks) (d) Portfolio 2: The proportions invested in stock 1, stock 2, and risk free asset are 60%, 70%, and -30%, respectively. (5 marks) 4. Consider a CAPM economy. The risk free rate (rf) is 3% and the expected market return (™M) is 11%. Compute the expected return of the following stocks or portfolios. Total: 20 marks. (a) Stock 1: B = 0.80. (5 marks) (b) Stock 2: B = 1.20. (5 marks) (c) Portfolio 1: The proportions invested in stock 1, stock 2, and risk free asset are 40%, 40%, and 20%, respectively. (5 marks) (d) Portfolio 2: The proportions invested in stock 1, stock 2, and risk free asset are 60%, 70%, and -30%, respectively. (5 marks)

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Given Riskfree rate r f 3 Expected market return r M 11 In the CAPM economy the expected return of s... View the full answer