Correlation with market portfolio-standard deviation


Problem:

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 25 percent and a standard deviation of 4 percent. The risk-free rate is 5 percent, and the expected return on the market portfolio is 20 percent. Assume the capital-asset-pricing model holds. What expected rate of return would a security earn if it had a 0.5 correlation with the market portfolio and a standard deviation of 2 percent?

Solution Preview :

Prepared by a verified Expert
Finance Basics: Correlation with market portfolio-standard deviation
Reference No:- TGS02038270

Now Priced at $20 (50% Discount)

Recommended (98%)

Rated (4.3/5)