Security a Has an Expected Return of 12

question 11

Essay

Security A has an expected return of 12.4% with a standard deviation of 15%,and a correlation with the market of 0.85.Security B has an expected return of -0.73% with a standard deviation of 20%,and a correlation with the market of -0.67.The standard deviation of r_M is 12%.
A) To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.)
B) What are the beta coefficients of A and B? Calculations are necessary.
C) If the risk-free rate is 6%, what is the value of r_M?

• A) To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.)
• B) What are the beta coefficients of A and B? Calculations are necessary.
• C) If the risk-free rate is 6%, what is the value of r_M?

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