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CAPM has implications for expected returns and correlations

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If CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. Hint: recall that the CAPM has implications for expected returns, correlations, covariances and variances.

a) Portfolio A - Expected Return =20, Beta=1.4

Portfolio B - Expected Return =25, Beta=1.2

b) Portfolio A - Expected Return =30, SD=35

Portfolio B - Expected Return =45, SD=25

c) Portfolio Rf - Expected Return =10, SD=0

Portfolio Market - Expected Return =18, SD=24

Portfolio A - Expected Return=16, SD=12

d) Portfolio Rf - Expected Return =10, SD=0

Portfolio Market - Expected Return =18, SD=24

Portfolio A - Expected Return=20, SD=22

e) Portfolio Rf - E(r)=10, Beta=0

Portfolio Market - E(r)=18, Beta=1

Portfolio A - E(r)=16, Beta=1.5

f) Portfolio Rf - E(r)=10, Beta=0

Portfolio Market - E(r)=18, Beta=1

Portfolio A - E(r)=16, Beta=0.9

Reference no: EM131056176

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