I want assistance in trying to solve the below problem. I understand that B is at more risk but not understanding what the formula would be to come up to the rM and beta coefficients of A and B.
Security A has an expected return of 10.4 percent with a standard deviation of 15 percent, and a correlation with the market of 0.85. Security B has an expected return of 0.73 percent with a standard deviation of 20 percent, and a correlation with the market of 0.67. The standard deviation of rM is 12 percent.
Required:
Problem 1: To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why?
Problem 2: What are the beta coefficients of A and B? (Calculations are required)
Problem 3: If the risk-free rate is 6 percent, what is the value of rM?