Question: Consider the following two stocks A and B. The riskfree rate is 5%, the expected return on the market is 12% and the variance of the market return is 0.01.
Corr with market Standard deviation
Stock A 0.5 0.25
Stock B 0.3 0.30
a) Compute betas for stocks A and B and for an equally weighted portfolio of A and B
b) If this equally weighted portfolio has an expected return of 14%, should you buy it?