What investment has the highest possible expected return

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Your investment portfolio consists of $15,000 invested in only one stock-Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the CAPM assumptions

Problem (1) What alternative investment has the lowest possible volatility while having the same expected return as Microsoft? What is the volatility of this investment?

Problem (2) What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment?

Reference no: EM132765182

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