CAPM, PORTFOLIO RISK. AND RETURN Consider the following information for Stocks X, Y, and Z. The returns on the three stocks arc positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)
Stock | Expected Return | Standard Deviation | Beta |
X | 9.00% | 15% | 0.8 |
Y | 10.75 | 15 | 1.2 |
Z | 12.50 | 15 | 1.6 |
Fund Q has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.)
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