What is the expected return and volatility

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Question - Suppose you group all the stocks in the world into two mutually exclusive portfolios (each stock is in only one portfolio): growth stocks and value stocks. Suppose the two portfolios have equal size (in terms of total market value), a correlation of 0.5, and the following characteristics:

 

Expected Return

Volatility

Value Stocks

13%

12%

Growth Stocks

17%

25%

The risk-free rate is 2%.

Required -

(a) What is the expected return and volatility of the market portfolio?

(b) Does the CAPM hold in this economy? (Hint: Is the market portfolio efficient?)

Reference no: EM133087982

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