CAPM_examples - 2. The expected market risk premium is E(R...

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1. The expected return on the market portfolio M is E(R M ) = 12%, the standard deviation of M is σ M = 16%, and the risk-free rate is R f = 4%. The CAPM is assumed to hold. a) Suppose that there is a portfolio with an expected return of 16% and variance of 0.04. Is this possible under the CAPM? If so, is this an efficient portfolio? b) Suppose that another portfolio has a beta of 0.8 and a standard deviation of 16%. Is this possible under the CAPM? If so, is this an efficient portfolio?
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Unformatted text preview: 2. The expected market risk premium is E(R M-R f ) = 9%. The variance of the market is 0.0484. Assume that the CAPM holds. Suppose that an efficient portfolio P has a standard deviation P = 30%, and a correlation with the market portfolio of 0.55. Compute the beta and the expected risk premium of portfolio P. 3. Assume that the CAPM holds. a) Is this situation possible under the CAPM: b) Is this situation possible under the CAPM:...
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This note was uploaded on 02/06/2012 for the course MGMT 411 taught by Professor Clarke during the Spring '09 term at Purdue University-West Lafayette.

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CAPM_examples - 2. The expected market risk premium is E(R...

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