Security a Has an Expected Return of 12

question 20

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?

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Definitions:

Customer Support

A service provided by companies to assist customers with their products or services, aiming to resolve issues and improve customer satisfaction.

Time-Driven

An approach or method that calculates costs or processes based on the time required to complete them.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific products or projects based on their use of resources, aiming for more accurate product costing.

Tech Support

A service provided to help customers resolve technical problems with products or services.