"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%, standard deviation=60%; Stock B, expected return=8%, standard deviation=40%. Correlation between A and B is -1. If the market risk premium is 4%, what is the expected return for a portfolio with a beta of 1.5 in a CAPM universe?"

		16%
		15%
		14%
		None of the above

Expert Solution

Correct answer: 16%

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...

"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%, standard deviation=60%; Stock B, expected return=8%, standard deviation=40%. Correlation between A and B is -1. If the market risk premium is 4%, what is the expected return for a portfolio with a beta of 3 in a CAPM universe?" 15% 18% 22% None of the above

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"The characteristics of two stocks traded in the economy are as follows: Stock A, expected return=13%,...

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