Security a Has an Expected Return of 12

question 25

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 Bσ Whyσ (Hint: No calculations are necessary to answer this question; it is easy.)
b. What are the beta coefficients of A and Bσ Calculations are necessary.
c. If the risk-free rate is 6%, what is the value of rMσ

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Definitions:

Senior Citizens

Individuals who are considered to be in the later stage of life, typically those aged 65 years and above, often associated with retirement.

Active Lifespans

Active lifespans indicate a period during which individuals engage in physical, social, and mental activities that promote health, well-being, and satisfaction across their lifetime.

Eating Disorders

Mental disorders characterized by abnormal or disturbed eating habits, which can negatively impact an individual's health and emotional well-being.

Causality

Causality is the relation between causes and effects, where one event (the cause) directly leads to another event (the effect).