What is the expected return on the market portfolio

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Reference no: EM132065444

Suppose the risk-free rate is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model:

a) What is the expected return on the market portfolio?

b) What would be the expected return on a zero-beta stock?

c) The covariance between stock A and the market is 0.03. The market has a volatility of 20%. What is stock A’s beta?

d) What is stock A’s expected return? Plot on the SML.

Reference no: EM132065444

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