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Assume that the risk-free rate is 9 and the expected return

Problem 1:

Suppose the return on portfolio P has the following probability distribution:

	Bear Market	Normal market	Bull market
Probability	0.2	0.5	0.3
Return on P	-20%	18%	50%

Assume that the risk-free rate is 9%, and the expected return and standard deviation on the market portfolio M is 0.19 and 0.20, respectively. The correlation coefficient between portfolio P and the market portfolio M is 0.6.

Answer the following questions:

Is P efficient? What is the beta of portfolio P?
What is the alpha of portfolio P? Is P overpriced or underpriced?

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Finance Basics: Assume that the risk-free rate is 9 and the expected return

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Finance Basics: Assume that the risk-free rate is 9 and the expected return

Reference No:- TGS01632408

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