The expected return on the market portfolio mu m erm 15, Ask an Expert

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The expected return on the market portfolio mu m = E[Rm] = 15%, the standard deviation is sigma m = 25% and the risk-free rate is Rf = 5%. Suppose the CAPM holds.

(a) Draw on a diagram with the Capital Market Line (CML) derived from the above data. Make sure to clarify the intercept and the slope.

(b) Compute the expected return of two well-diversi ed portfolios (i.e., portfolios on the CML), one with standard deviation of 15%, and the other with standard deviation of 25%.

(c) Suppose that a portfolio with standard deviation of 10% has an expected return of 11%. Is this compatible with the CAPM? Explain.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92071148

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