Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. The correlation coefficient ρAB = 0.4. Assume CAPM holds. (a) What is expected return of the market portfolio? (b) What is volatility of the market portfolio? (c) What is the beta of each stock?

Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 200 shares outstanding, a price per share of $3.00, an expected return of 16% and a volatility of 30%. Stock B has 300 shares outstanding, a price per share of $4.00, an expected return of 10% and a volatility of 15%. The correlation coefficient ρAB = 0.4. Assume CAPM holds. (a) What is expected return of the market portfolio? (b) What is volatility of the market portfolio? (c) What is the beta of each stock?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 3P: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...

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