In: Accounting
Your investment portfolio consists of $18,000 invested
in only one stock—Microsoft. Suppose the riskfree rate is 6%,
Microsoft stock has an expected return of 13% and a volatility of
44%, and the
market portfolio has an expected return of 12% and a volatility of
19%. Under the CAPM
assumptions,
a. What alternative investment has the lowest possible volatility
while having the same expected
return as Microsoft? What is the volatility of this
investment?
b. What investment has the highest possible expected return while
having the same volatility as
Microsoft? What is the expected return of this investment?