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What are the betas of the two securities

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Reference no: EM133067909

You are given the following information on two securities, the market portfolio,  and the risk-free rate:

 

Expected Return

 Correlation with Market Portfolio

 Standard Deviation

 Security 1

 15.5%

 0.9

 20%

 Security 2

 9.2%

 0.8

 9%

 Market Portfolio

 12%

 1

 12%

 Risk-free Rate

 5%

 0

 0%

For parts a, b, and c use the above table.

  1. Draw the SML
  2. What are the betas of the two securities?
  3. Plot the two securities on the SML.
  4. Now assume that two other securities, A and B, constitute the market portfolio. Their proportion in it and variances are 0.39, 160, and 0.61, 340 respectively. The covariance of the two securities is 190. Calculate the betas of the two securities.

Reference no: EM133067909

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