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Expected return and standard deviation of market portfolio

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Reference no: EM133116775

In a hypothetical world of a risk-free asset Rf and three risky assets A, B, and C. Suppose the CAPM holds. Answer the required questions with the information about A, B, C, and the market portfolio (M) constructed using them provided in the table below.

 

Asset A

Asset B

Asset C

Expected return

10%

14%

11%

Standard deviation

15%

20%

16%

Assets' Weights of the Market Portfolio (M)

25.34%

37.29%

37.37%

Correlation matrix

Asset A

Asset B

Asset C

Asset A

1

 

 

Asset B

0.4

1

 

Asset C

0.2

0.3

1

QUESTIONS

  1. Calculate the expected return and standard deviation of the market portfolio (M).
  2. Calculate the covariances of Asset A, B, C, with the market portfolio (M), respectively. That is, COV(A, M) and COV(B, M). 

Reference no: EM133116775

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