Use the Information for the Question(s)below

question 70

Essay

Use the information for the question(s)below.
Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market.
-You currently own $100,000 worth of Wal-Mart stock.Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%.The market portfolio has an expected return of 12% and a volatility of 16%.The risk-free rate is 5%.Assuming the CAPM assumptions hold,what alternative investment has the highest possible expected return while having the same volatility as Wal-Mart? What is the expected return of this portfolio?

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Definitions:

Corporal Punishment

A form of physical punishment that involves the deliberate infliction of pain for disciplinary purposes, typically used in schools, judicial systems, and families.

Banishment

The act of formally or officially removing someone from a country, region, or community, often as a punitive measure.

Combination Act

Legislation passed in the United Kingdom during the early 19th century, specifically designed to restrict the activities of trade unions and prevent workers from organizing or striking.

Striking Workers

Employees who cease work as a form of protest, typically in an effort to obtain better wages, working conditions, or other employment terms from their employers.