What is the expected rate of return on your portfolio

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1. The expected rate of return on the market portfolio is 11.50% and the risk–free rate of return is 2.00%. The standard deviation of the market portfolio is 19.75%. What is the representative investor’s average degree of risk aversion?

2. Stock A has a beta of 1.50 and a standard deviation of return of 32%. Stock B has a beta of 3.50 and a standard deviation of return of 58%. Assume that you form a portfolio that is 45% invested in Stock A and 55% invested in Stock B. Using the information in question 1, according to CAPM, what is the expected rate of return on your portfolio?

3. Using the information in questions 1 and 2, what is your best estimate of the correlation between stocks A and B?

Reference no: EM131459410

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