Reference no: EM13885060
In the following, assume that the CAPM is true. Denote by rM the return of the market portfolio, βi the beta of security i with the market portfolio, and ρi,M the correlation between security i and the market portfolio M. You have the following information about the economy:
• Security A: E(rA) = 0.095, σA = 0.30, βA = 0.75
• Security B: E(rB) = 0.125, σB = 0.25, ρB,M = 1.0
• Security C: E(rC) = 0.050, σC = 0.40, ρC,M = 0.0
a) Find the risk-free rate rf of this economy.
b) Find the expected return E(rM) of the market portfolio.
c) Find the standard deviation σM of the market portfolio.
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