Problem:
Security A has an expected return of 10.4 percent with a standard deviation of 12 percent, and a correlation with the market of 0.75. Security B has an expected return of -0.70 percent with a standard deviation of 20 percent, and a correlation with the market of 0.60. The standard deviation of rm is 12 percent.
Required:
Question 1: What are the beta coefficients of A and B?
Question 2: If the risk free rate is 6 percent, what is the value of rm?
Note: Explain all calculation and formulas.