Stock A has an expected return of 12 percent and a standard deviation of 14 percent. Stock B has an expected return of 15 percent and a standard deviation of 16 percent. The correlation between them is 0.4. Portfolio Percentage in A Percentage in B 1 25 75 2 50 50 3 75 25 b) Calculate the expected return and the standard deviation for the minimium variance portfolio. c) If the risk-free rate is 8%, which one of the portfolios is the market portfolio according to the CAPM? (Which portfolio has the hightes Sharpe ratio?) D)Base on your calculations above, draw the portfolio frontier, indicate the effient portfolios, and add the Capital Allocation Line (CAL) (Capital Market Line (CML)).

Stock A has an expected return of 12 percent and a standard deviation of 14 percent. Stock B has an expected return of 15 percent and a standard deviation of 16 percent. The correlation between them is 0.4. Portfolio Percentage in A Percentage in B 1 25 75 2 50 50 3 75 25 b) Calculate the expected return and the standard deviation for the minimium variance portfolio. c) If the risk-free rate is 8%, which one of the portfolios is the market portfolio according to the CAPM? (Which portfolio has the hightes Sharpe ratio?) D)Base on your calculations above, draw the portfolio frontier, indicate the effient portfolios, and add the Capital Allocation Line (CAL) (Capital Market Line (CML)).

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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