Question

Asked Nov 11, 2019

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Suppose the risk-free rate is 5.1 percent and the market portfolio has an expected return of 11.8 percent. The market portfolio has a variance of .0472. Portfolio Z has a correlation coefficient with the market of .37 and a variance of .3375 |

According to the capital asset pricing model, what is the expected return on Portfolio Z? |

Step 1

Standard deviation of market portfolio and portfolio Z is calculated. Then covariance and beta of the portfolio Z is calculated as in the excel below:

Step 2

Step 3

Using CAPM m...

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