#2. Consider a portfolio exhibiting an expected return of 8% in an economy where the riskless...

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#2. Consider a portfolio exhibiting an expected return of 8% in an economy where the riskless interest rate is 2%, the expect

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Answer 1

Answer #1

Beta=(expected return-risk free rate)/(market return-risk free rate)=(8%-2%)/(12%-2%)=0.60

Standard deviation=(expected return-risk free rate)/((market return-risk free rate)/standard deviation of market))=(8%-2%)/((12%-2%)/10%)=6.000%

Correlation=Beta*standard deviation of market/standard deviation of stock=0.60*10%/6%=1

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